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Arbitrage Funds

Filed: 5 Aug 21, 2:33pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number: 811-09815

 

the arbitrage funds

(exact name of registrant as specified in charter)

 

41 Madison Avenue, 42nd Floor, New York, NY 10010

(Address of principal executive offices) (Zip code)

 

John S. Orrico

Water Island Capital, LLC

41 Madison Avenue

42nd Floor

New York, NY 10010

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 800-295-4485

 

Date of fiscal year end:      May 31

 

Date of reporting period:   May 31, 2021

 

 

 

 

 

 

Item 1.    Reports to Stockholders.

  

 

 

 

Annual Report

May 31, 2021

Arbitrage Fund

Water Island Event-Driven Fund

Water Island Credit Opportunities Fund

Water Island Long/Short Fund


TABLE OF CONTENTS

Shareholder Letter

  

1

  

Arbitrage Fund

 

Manager Commentary

  

4

  

Portfolio Information

  

6

  

Portfolio of Investments

  

8

  

Water Island Event-Driven Fund

 

Manager Commentary

  

23

  

Portfolio Information

  

25

  

Portfolio of Investments

  

27

  

Water Island Credit Opportunities Fund

 

Manager Commentary

  

42

  

Portfolio Information

  

44

  

Portfolio of Investments

  

46

  

Water Island Long/Short Fund

 

Manager Commentary

  

57

  

Portfolio Information

  

59

  

Portfolio of Investments

  

61

  

Statements of Assets and Liabilities

  

70

  

Statements of Operations

  

74

  

Statements of Changes in Net Assets

  

78

  

Financial Highlights

 

Arbitrage Fund - Class R

  

82

  

Arbitrage Fund - Class I

  

83

  

Arbitrage Fund - Class C

  

84

  

Arbitrage Fund - Class A

  

85

  

Water Island Event-Driven Fund - Class R

  

86

  

Water Island Event-Driven Fund - Class I

  

87

  

Water Island Event-Driven Fund - Class A

  

88

  

Water Island Credit Opportunities Fund - Class R

  

89

  

Water Island Credit Opportunities Fund - Class I

  

90

  

Water Island Credit Opportunities Fund - Class A

  

91

  

Water Island Long/Short Fund - Class I

  

92

  

Notes to Financial Statements

  

93

  

Report of Independent Registered Public Accounting Firm

  

120

  

Disclosure of Fund Expenses

  

121

  

Additional Information

  

124

  

Approval of Investment Advisory Agreements

  

125

  

Liquidity Risk

  

131

  

Trustees & Officers

  

132

  

The Arbitrage Funds  Shareholder Letter

May 31, 2021 (Unaudited)

Dear Fellow Shareholders,

One year ago, we wrote to you about the unprecedented nature of the preceding 12 months. Today, we write to you about...the unprecedented nature of the preceding 12 months. After the COVID-19 pandemic brought the longest bull market in history to an abrupt end, the rebound was – remarkably – nearly as swift. Over the past year, investors responded positively to central bank support, fiscal stimulus, and businesses broadly reopening on the back of widespread availability of COVID vaccines. Equity markets generated impressive gains for the period and continue to reach all-time highs. At the same time, our event-driven strategies have delivered compelling risk-adjusted returns in line with our expectations for the Funds.

We believe this period has been interesting and instructive for several reasons. In some respects, it mirrors the market behavior we witnessed following the Global Financial Crisis, albeit on a compressed timeline. In 2008, a dramatic market crash and soaring volatility caused forced selling that drove merger spreads significantly wider. Pending transactions with strong merger agreements did proceed to close, with little drama, at perplexing annualized rates of return. On the other hand, in deals with weaker contracts, many buyers attempted to escape their obligations. A similar situation unfolded in 2020, although the period during which spreads were at their widest was relatively short-lived, and merger agreements are generally stronger, with fewer loopholes, in the current era. Nonetheless, we witnessed several buyers attempt to litigate their way out of transactions, which led to ongoing volatility in deal spreads (and also provided moments to trade in and out of spreads opportunistically). In 2009, we also witnessed the phenomenon of a rise in competitive bidding situations coming out of a downturn. These situations can occur when companies in a position of strength seek to make opportunistic acquisitions, when companies in a position of weakness must combine to survive, or simply when acquirers disagree on the prospects for a recovery and thus have differing opinions on valuation. In the first half of 2021, this phenomenon has borne out again, with several competitive bidding situations emerging and the share of announced transactions receiving topping bids trending well above average. Such opportunities can serve as a tailwind to returns in merger-related investments, and we believe we will continue to see these types of events unfold in the near term.

Looking forward, the specter of rising inflation has put many investors in a cautious position. Whether elevated inflation will be sustained or short-lived, we believe our event-driven strategies are well positioned to weather its impact. Merger arbitrage generally benefits from increases in interest rates – a tool commonly used to battle inflation – as the risk-free rate serves as one of the core building blocks of a merger arbitrage spread. In addition, investments in our catalyst-driven credit strategy are typically characterized by short durations to events, averaging well under a year. The more pertinent risk that we see, as it relates to our strategies, is the changing of the guard at several regulatory agencies following the election of President Biden. As the administration continues to fill key roles at the FTC, DOJ, and FCC, it is all but certain a more stringent approach will be taken toward antitrust review. That said, some appointees have arrived with fairly novel views of antitrust regulation – some of which may be at odds with current antitrust laws, and could lead to contentious and lengthy regulatory reviews, litigation, and even new legislation. This is a story whose ending has yet to be written. As regulators eventually make their intentions known more broadly we may see corporations shy away from attempting deals that could trigger objections, but in the meantime, merger arbitrageurs must be increasingly cautious about participating in transactions with the potential to raise regulators' antennae.

Annual Report | May 31, 2021
1


The Arbitrage Funds  Shareholder Letter (continued)

May 31, 2021 (Unaudited)

As event-driven investors, our objective remains to generate returns sourced from the outcomes of idiosyncratic corporate events, rather than from the overall direction of broader credit or equity markets. At the same time, we seek to mitigate risk, with a goal of delivering our non-correlated return streams with as little volatility as possible. We believe market volatility could remain heightened in the year ahead. With announced mergers and acquisitions activity surpassing record levels and a broad menu of other event-driven opportunities in front of us, we believe there is no better time than the present for investors to seek out sources of differentiated returns and volatility mitigation, and we are excited for the year ahead. Thank you for your continued support.

Sincerely,
The Investment Team
Water Island Capital

The discussion of market trends and companies throughout this commentary are not intended as advice to any person regarding the advisability of investing in any particular security. Some of our comments are based on current management expectations and are considered "forward-looking statements." Actual future results, however, may prove to be different from our expectations. Our views are a reflection of our best judgment at the time of the commentary and are subject to change any time based on market and other conditions, and we have no obligation to update them.

Glossary

Capital Structure Arbitrage: An investment strategy that seeks to take advantage of relative mispricing across different classes of debt- or equity-linked securities issued from the same company's capital structure.

Convertible Arbitrage: An investment strategy that involves the simultaneous purchase of convertible securities and the short sale of the same issuer's common stock.

Convertible Bond: A type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value.

Debt Tranche: A portion of a pooled collection of debt instruments split up by risk or other characteristics in order to be marketable to different investors.

Duration to Event: The length of time until an announced or speculated catalyst is expected to occur.

Dutch Tender: An offer to purchase securities within a given price range through an auction structure, wherein shareholders are invited to sell shares over a specific time period by specifying the lowest price within the range that they will accept.

ESG Investing: A form of sustainable investing that considers not just an investment's financial returns but also its overall impact on the environment, social responsibility, and corporate governance.

Long: A purchase of a security or position in a security that was purchased.

Option: A type of derivatives contract that provides the buyer the opportunity to buy or sell an underlying asset at a stated price within a specific timeframe.

www.arbitragefunds.com | 1-800-295-4485
2


The Arbitrage Funds  Shareholder Letter (continued)

May 31, 2021 (Unaudited)

Private Investment in Public Equity (PIPE): A method by which a publicly traded company will issue new shares in the private market, which are typically sold below current market value, as a method of raising additional capital.

Re-Rating: When the market changes its view of a company sufficiently to make valuation ratios substantially higher or lower.

Risk-Free Rate: The theoretical rate of return of an investment with zero risk (frequently represented by interest rates on short-term Treasury Bills in the United States).

Short: A sale of a security without being owned or a position in a security that was sold without being owned.

Special Purpose Acquisition Company (SPAC): A holding company that raises money through an IPO for the sole purpose of acquiring a privately held entity, as a means of taking its target public without going through a traditional IPO process of its own.

Spread (also: "merger spread," "deal spread," or "merger arbitrage spread"): The difference between the price at which a target company's shares currently trade and the price an acquiring company has agreed to pay, which forms the rate of return in a merger arbitrage investment.

Yield-to-Call: The yield of a bond that is bought and held until the next anticipated call date, assuming the security is called prior to maturity.

Annual Report | May 31, 2021
3


Arbitrage Fund  Manager Commentary

May 31, 2021 (Unaudited)

Arbitrage Fund | Tickers: ARBNX, ARBFX, ARBCX, ARGAX

The Fund's Goal and Main Investments

The Fund seeks to achieve capital growth by engaging in merger arbitrage. Merger arbitrage is a sub-set of a broader event-driven investment strategy, which seeks to profit from investing in securities that are involved in corporate events such as mergers and acquisitions. Typically, merger arbitrage is a low volatility strategy pursued by absolute-return-minded investors. At Water Island Capital, our goal is to capture a return stream with a low correlation to the overall markets.

Investment Strategy

The strategy's focus is to capture returns from corporate events, generate market neutral capital growth, preserve capital, generate consistent and positive returns, and achieve low correlation and low volatility. The Fund generally engages in active and frequent trading of portfolio securities to achieve its principal investment objective. In attempting to achieve its investment strategy, the Fund plans to invest at least 80% of its net assets in equity securities of companies (both U.S. and foreign) that are involved in publicly announced mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations, and other corporate reorganizations. The Fund's investment adviser uses investment strategies designed to minimize market exposure, including short selling along with purchasing and selling options. The most common merger arbitrage activity, and the approach generally used by the Fund, involves purchasing the shares of an announced acquisition target company at a discount to their expected value upon the acquisition's completion. That difference, or "spread," is the primary driver of returns for this investment strategy. There is no limit to the number of stocks the Fund can hold; however, the Fund typically invests in 40 to 80 deals at any given time. Each deal will have one, or perhaps two, equity positions (a long and short position in a stock-for-stock deal) and, in many cases, associated derivative positions for hedging purposes.

Fiscal Year Highlights

Arbitrage Fund Class I (ARBNX) returned 7.87% for the fiscal year ending May 31, 2021. Returns were generated predominantly in the Americas region, though investments in Europe and the Asia-Pacific region also contributed to performance. The top performing sectors in the fund were information technology and health care. The Fund had no detractors on a sector basis.

The Fund's top performing deal for the period was our position in the acquisition of Acacia Communications by Cisco Systems. In July 2019, Cisco – a U.S.-based provider of communications and networking equipment – reached an agreement to acquire Acacia – a U.S.-based manufacturer of fiber-optic transmission hardware – for $3.1 billion in cash. Due to a lengthy regulatory review process in China, the deal arrived at its termination date in early January without having received all required approvals. Acacia, which had seen its business improve significantly in the time since the deal's announcement, attempted to exercise its right to terminate the transaction. Cisco was clearly committed to acquiring the asset, however, as it sought an injunction preventing Acacia from terminating the deal and – just three days later – the companies announced they had arrived at an amended agreement. Cisco's revised offer was worth $5.0 billion, more than 60% higher than the original terms. The deal received all remaining regulatory approvals and completed successfully in March, leading to gains for the Fund.

The second-best performer was our position in Pacific Biosciences of California. In November 2018, Illumina – a U.S. developer of tools for DNA sequencing and analysis – agreed to acquire Pacific Biosciences – a U.S. DNA sequencing technology firm – for $1.1 billion in cash. The transaction ultimately failed to secure regulatory approval, leading to its termination at the start of 2020, though we opted to maintain our exposure to Pacific Biosciences as we believed

www.arbitragefunds.com | 1-800-295-4485
4


Arbitrage Fund  Manager Commentary (continued)

May 31, 2021 (Unaudited)

the company was not only trading below our fundamental valuation post-break, but also remained an attractive takeout candidate. (In fact, during the regulatory review process it was revealed Illumina's interest in the company was driven in part by a belief that no fewer than four of its major competitors were potential suitors of Pacific Biosciences.) In Q3 2020, following the appointment of a new CEO and improving business prospects for the company, the company's shares traded higher and we exited our position at a gain.

Conversely, the top detractor in the portfolio for the period was our position in the merger of Gilat Satellite Networks and Comtel Telecommunications. In January 2020, Gilat – an Israel-based provider of satellite communications – agreed to be acquired by Comtech – a U.S. manufacturer of communications equipment – for $569 million in cash and stock. Both companies saw their businesses impacted by the COVID-19 pandemic and subsequently sued each other – Comtech in an attempt to terminate the merger, and Gilat in an attempt to bind Comtech to it. In Q4 2020, rather than pursue their lawsuits, the companies agreed to call off the deal and dismiss all pending litigation, leading to losses in the Fund.

The Fund's second-worst performer was our position in the acquisition of Fitbit by Google. In November 2019, Alphabet Inc – via subsidiary Google – agreed to acquire Fitbit – a U.S.-based manufacturer of fitness-tracking devices and mobile apps – in a transaction worth $1.8 billion in cash. We held a position in the deal at various points during the timeline, though regulatory concerns around Google's ownership of sensitive user health data led to volatility in the spread, contributing to losses for the Fund.

Annual Report | May 31, 2021
5


Arbitrage Fund  Portfolio Information

May 31, 2021 (Unaudited)

Performance (annualized returns as of May 31, 2021)

 One
Year
 Five
Year
 Ten
Year
 Since
Inception*
 

Arbitrage Fund, Class R

  

7.58

%

  

3.58

%

  

2.61

%

  

4.09

%

 

Arbitrage Fund, Class I

  

7.87

%

  

3.84

%

  

2.86

%

  

3.30

%

 

Arbitrage Fund, Class C**

  

6.77

%

  

2.78

%

  

N/A

   

1.85

%

 

Arbitrage Fund, Class A***

  

7.60

%

  

3.56

%

  

N/A

   

2.89

%

 
ICE BofA Merrill Lynch U.S. 3-Month
Treasury Bill Index
  

0.11

%

  

1.18

%

  

0.63

%

  

1.55

%

 

Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from the amount reported in the Financial Highlights. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com.

* Class R inception: 9/18/00; Class I inception: 10/17/03; Class C inception: 6/1/12; Class A inception: 6/1/13. The "Since Inception" returns for securities indices are for the inception date of Class R shares.

** Class C shares are subject to a 1.00% contingent deferred sales charge on all purchases redeemed within 12 months of purchase.

*** Class A shares are subject to a maximum front-end sales load of 2.75% on purchases up to $250,000. The shares are also subject to a deferred sales charge of up to 1.00% on purchases of $250,000 or more purchased without a front-end sales charge and redeemed within 18 months of purchase.

The Total Annual Fund Operating Expenses for Class R, Class I, Class C and Class A are 1.71%, 1.46%, 2.46% and 1.71%, respectively. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.

The ICE BofA Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.

An investor may not invest directly in an index.

www.arbitragefunds.com | 1-800-295-4485
6


Arbitrage Fund  Portfolio Information (continued)

May 31, 2021 (Unaudited)

Growth of $10,000 Investment

The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund over ten years. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

  

Sector Weighting

The following chart shows the sector weightings of the Arbitrage Fund's investments (including short sales and excluding derivatives) as of the report date.

Annual Report | May 31, 2021
7


Arbitrage Fund  Portfolio of Investments

May 31, 2021

  

Shares

 

Value

 

COMMON STOCKS - 83.75%

 

Aerospace & Defense - 1.19%

 

Aerojet Rocketdyne Holdings, Inc.(a)

  

393,059

  

$

19,043,709

  

Teledyne Technologies, Inc.(b)

  

(c)

  

54

  
   

19,043,763

  

Auto Parts & Equipment - 0.58%

 

Akasol AG(b)

  

42,836

   

6,268,362

  

Goodyear Tire & Rubber Co. (The)(a)(b)

  

150,546

   

2,985,328

  
   

9,253,690

  

Banks - 1.19%

 

Cadence BanCorp(a)

  

349,228

   

7,815,723

  

Sbanken ASA(d)

  

917,354

   

11,276,335

  
   

19,092,058

  

Biotechnology - 3.78%

 

Alexion Pharmaceuticals, Inc.(a)(b)

  

342,274

   

60,428,475

  

Chemicals - 4.83%

 

Ferro Corp.(b)

  

921,467

   

19,903,687

  

Tikkurila Oyj

  

424,979

   

17,568,354

  

W R Grace & Co.(a)

  

579,137

   

39,682,467

  
   

77,154,508

  

Commercial Services - 4.49%

 

IHS Markit Ltd.(a)

  

681,424

   

71,760,761

  

Construction Materials - 1.49%

 

Forterra, Inc.(b)

  

653,007

   

15,267,304

  

Tarkett SA(b)

  

347,893

   

8,569,608

  
   

23,836,912

  

Distribution/Wholesale - 0.76%

 

Core-Mark Holding Co., Inc.

  

263,261

   

12,073,149

  

Electronics - 3.55%

 

Coherent, Inc.(b)

  

215,944

   

56,709,054

  

Engineering & Construction - 1.71%

 

Aegion Corp.(b)(e)

  

692,403

   

20,772,090

  

Signature Aviation Plc(b)

  

1,168,808

   

6,568,508

  
   

27,340,598

  

Forest Products & Paper - 1.15%

 

Domtar Corp.(b)

  

339,680

   

18,420,846

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
8


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

COMMON STOCKS - 83.75% (Continued)

 

Healthcare - Products - 3.21%

 

Cantel Medical Corp.(b)

  

384,729

  

$

31,290,009

  

Luminex Corp.(a)

  

540,392

   

19,935,061

  
   

51,225,070

  

Healthcare - Services - 4.36%

 

Magellan Health, Inc.(a)(b)

  

320,183

   

30,158,037

  

PPD, Inc.(a)(b)

  

857,162

   

39,532,311

  
   

69,690,348

  

Housewares - 0.15%

 

Hunter Douglas N.V.(b)

  

23,924

   

2,421,452

  

Insurance - 4.09%

 

TOWER Ltd.(b)

  

8,008,907

   

4,206,197

  

Willis Towers Watson Plc

  

234,229

   

61,218,092

  
   

65,424,289

  

Internet - 4.87%

 

Boingo Wireless, Inc.(b)

  

1,703,279

   

23,811,840

  

Cerved Group SpA(b)

  

632,760

   

7,585,015

  

Grubhub, Inc.(b)(f)

  

87,039

   

5,231,914

  

Leaf Group Ltd.(b)

  

640,963

   

5,409,728

  

Proofpoint, Inc.(a)(b)

  

207,322

   

35,827,315

  
   

77,865,812

  

Lodging - 2.71%

 

Extended Stay America, Inc.(a)

  

2,200,071

   

43,363,399

  

Machinery - Diversified - 2.31%

 

Welbilt, Inc.(a)(b)

  

1,491,211

   

36,847,824

  

Media - 0.59%

 

Euskaltel SA(d)

  

707,131

   

9,485,418

  

Office Furnishings - 0.35%

 

Knoll, Inc.(a)

  

212,050

   

5,513,300

  

Oil & Gas - 1.04%

 

Cimarex Energy Co.

  

244,455

   

16,561,826

  

Pharmaceuticals - 1.48%

 

PRA Health Sciences, Inc.(b)

  

138,219

   

23,624,392

  

Real Estate - 1.76%

 

CA Immobilien Anlagen AG

  

215,834

   

9,383,034

  

Deutsche Wohnen SE

  

293,567

   

18,687,089

  
   

28,070,123

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
9


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

COMMON STOCKS - 83.75% (Continued)

 

Real Estate Investment Trusts - 2.69%

 

Monmouth Real Estate Investment Corp.

  

970,720

  

$

18,288,365

  

VEREIT, Inc.

  

519,981

   

24,735,496

  
   

43,023,861

  

Retail - 2.24%

 

At Home Group, Inc.(b)

  

656,783

   

24,655,634

  

Foundation Building Materials, Inc.(b)(e)

  

553,392

   

11,145,315

  
   

35,800,949

  

Semiconductors - 7.42%

 

Dialog Semiconductor Plc(b)

  

166,670

   

13,259,749

  

Maxim Integrated Products, Inc.(a)

  

721,664

   

73,616,944

  

Xilinx, Inc.(a)

  

249,003

   

31,623,381

  
   

118,500,074

  

Software - 13.49%

 

Change Healthcare, Inc.(a)(b)

  

1,585,878

   

37,172,980

  

MINDBODY, Inc., Class A(b)(e)

  

843,793

   

30,798,445

  

Nuance Communications, Inc.(a)(b)(f)

  

828,440

   

43,824,476

  

Onemarket Ltd.(b)(e)

  

111,800

   

  

Pluralsight, Inc., Class A(b)(e)

  

1,000,062

   

22,501,395

  

Slack Technologies, Inc., Class A(a)(b)

  

1,394,652

   

61,420,474

  

Talend SA, ADR(a)(b)

  

304,870

   

19,807,404

  
   

215,525,174

  

Telecommunications - 1.42%

 

ORBCOMM, Inc.(b)

  

2,028,213

   

22,695,703

  

Transportation - 3.66%

 

Kansas City Southern(a)

  

196,326

   

58,442,324

  

Trucking & Leasing - 0.24%

 

Fly Leasing Ltd., ADR(a)(b)

  

229,642

   

3,883,246

  

Water - 0.95%

 

Suez SA(b)

  

621,611

   

15,130,146

  
TOTAL COMMON STOCKS
(Cost $1,267,866,262)
  

1,338,208,544

  

RIGHTS(b) - 0.13%

 

Bristol-Myers Squibb Co. CVR

  

857,631

   

943,394

  

Contra Pfenex, Inc. CVR(e)

  

1,108,177

   

884,990

  

Elanco Animal Health, Inc. CVR(e)

  

1,124,589

   

  

Media General, Inc. CVR(e)

  

613,589

   

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
10


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

RIGHTS(b) - 0.13% (Continued)

 

NewStar Financial, Inc. CVR(e)

  

1,514,945

  

$

  

Stemline Therapeutics, Inc. CVR(e)

  

693,435

   

250,885

  
TOTAL RIGHTS
(Cost $2,274,066)
  

2,079,269

  

 

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS - 0.32%

 

Entertainment - 0.32%

 
Stars Group Holdings B.V. /
Stars Group
US Co-Borrower LLC(d)
 

07/15/2026

  

7.000

%

 

$

4,949,000

  

$

5,148,247

  
TOTAL CORPORATE BONDS
(Cost $5,144,622)
  

5,148,247

  

CONVERTIBLE CORPORATE BONDS - 0.54%

 

Auto Manufacturers - 0.14%

 

Lightning eMotors, Inc.(d)

 

05/15/2024

  

7.500

%

  

2,596,000

   

2,170,464

  

Private Investments(e)(g) - 0.40%

 

GigCapital2 PIPE

 

06/15/2026

  

6.250

%

  

3,613,000

   

3,284,903

  

Kaleyra PIPE

 

06/01/2026

  

6.125

%

  

3,525,000

   

3,148,812

  
         

6,433,715

  
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $9,734,000)
  

8,604,179

  

 

  

Shares

 

Value

 

MUTUAL FUNDS - 4.74%

 

Water Island Event-Driven Fund, Class I(h)

  

6,605,365

  

$

75,829,593

  
TOTAL MUTUAL FUNDS
(Cost $60,632,644)
  

75,829,593

  

PRIVATE INVESTMENTS(b) - 0.20%

 

Fast Capital LLC(e)(g)

  

290,700

   

290,700

  

Fuse LLC(e)(g)

  

725,800

   

659,817

  

Fuse Sponsor Capital, Z2 Shares(e)(g)

  

72,580

   

65,982

  

GigCapital2 PIPE Equity

  

48,973

   

493,648

  

Kaleyra PIPE Equity

  

134,591

   

1,635,281

  
TOTAL PRIVATE INVESTMENTS
(Cost $3,205,602)
  

3,145,428

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
11


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

WARRANTS(b) - 0.02%

 

Auto Manufacturers - 0.02%

 
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 07/02/2025
  

225,739

  

$

302,490

  
TOTAL WARRANTS
(Cost $0)
  

302,490

  

 

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(b) - 0.08%

 

Call Options Purchased - 0.06%

 
Advanced Micro
Devices, Inc.
 

06/2021

 

$

90.00

  

$

6,878,872

   

859

  

$

22,334

  

Grubhub, Inc.

 
  

06/2021

  

75.00

   

1,514,772

   

252

   

4,410

  
  

06/2021

  

77.50

   

1,719,146

   

286

   

11,440

  
  

06/2021

  

80.00

   

2,404,400

   

400

   

6,000

  

Herman Miller, Inc.

 

06/2021

  

50.00

   

3,006,620

   

629

   

37,740

  

II-VI, Inc.

 

06/2021

  

65.00

   

12,382,606

   

1,838

   

726,010

  
Magnachip Semiconductor
Corp.
 

06/2021

  

25.00

   

1,047,540

   

442

   

29,835

  

Middleby Corp. (The)

 
  

06/2021

  

180.00

   

2,053,500

   

125

   

26,875

  
  

06/2021

  

185.00

   

4,402,704

   

268

   

12,730

  
  

06/2021

  

190.00

   

2,037,072

   

124

   

2,976

  
  

06/2021

  

195.00

   

2,053,500

   

125

   

5,875

  
  

07/2021

  

175.00

   

2,414,916

   

147

   

55,125

  
  

07/2021

  

180.00

   

2,053,500

   

125

   

34,687

  
Nuance Communications,
Inc.
 

06/2021

  

55.00

   

11,458,140

   

2,166

   

21,661

  
TOTAL CALL OPTIONS PURCHASED
(Cost $1,747,863)
  

997,698

  

Put Options Purchased - 0.02%

 

ChargePoint Holdings, Inc.

 

08/2021

  

17.50

   

1,689,890

   

694

   

55,867

  

Churchill Capital Corp. IV

 

07/2021

  

17.50

   

1,477,028

   

749

   

118,716

  
Defiance NextGen SPAC
Derived ETF
 
  

08/2021

  

20.00

   

2,395,200

   

960

   

67,200

  
  

08/2021

  

21.00

   

2,395,200

   

960

   

91,200

  

Stem, Inc.

 

07/2021

  

17.50

   

2,262,862

   

893

   

37,953

  
TOTAL PUT OPTIONS PURCHASED
(Cost $975,121)
  

370,936

  
TOTAL PURCHASED OPTIONS
(Cost $2,722,984)
  

1,368,634

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
12


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

  

Yield

 

Shares

 

Value

 

SHORT-TERM INVESTMENTS - 9.35%

 

Money Market Funds

 
Morgan Stanley Institutional Liquidity Fund
Government Portfolio, Institutional Class
  

0.026

%(i)

  

74,683,388

  

$

74,683,388

  
State Street Institutional U.S. Government
Money Market Fund, Premier Class
  

0.051

%(i)

  

74,683,389

   

74,683,389

  
       

149,366,777

  
TOTAL SHORT-TERM INVESTMENTS
(Cost $149,366,777)
  

149,366,777

  
Total Investments - 99.13%
(Cost $1,500,946,957)
  

1,584,053,161

  

Other Assets in Excess of Liabilities - 0.87%(j)

  

13,832,533

  

NET ASSETS - 100.00%

 

$

1,597,885,694

  

Portfolio Footnotes

(a)  Security, or a portion of security, is being held as collateral for short sales or forward foreign currency exchange contracts. At May 31, 2021, the aggregate fair market value of those securities was $429,986,040, representing 26.91% of net assets.

(b)  Non-income-producing security.

(c)  Fractional shares, amount rounds to zero.

(d)  Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of May 31, 2021, these securities had a total value of $28,080,464 or 1.76% of net assets.

(e)  Security fair valued using significant unobservable inputs and classified as a Level 3 security. As of May 31, 2021, the total fair market value of these securities was $93,803,334, representing 5.87% of net assets.

(f)  Underlying security for a written/purchased call/put option.

(g)  Represents a holding that is a direct investment into a private company and is not a listed or publicly traded entity.

(h)  Affiliated investment.

(i)  Rate shown is the 7-day effective yield as of May 31, 2021.

(j)  Includes cash held as collateral for short sales.

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (15.79%)

 

Banks - (0.47%)

 

BancorpSouth Bank

  

(244,460

)

 

$

(7,475,587

)

 

Electronics - (0.77%)

 

II-VI, Inc.

  

(183,928

)

  

(12,391,229

)

 

Food - (0.36%)

 

Performance Food Group Co.

  

(115,624

)

  

(5,796,231

)

 

See Notes to Financial Statements.

Annual Report | May 31, 2021
13


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (15.79%) (Continued)

 

Healthcare - Services - (0.80%)

 

ICON Plc

  

(57,015

)

 

$

(12,757,676

)

 

Home Furnishings - (0.04%)

 

Herman Miller, Inc.

  

(13,240

)

  

(632,872

)

 

Insurance - (4.01%)

 

Aon Plc, Class A

  

(252,975

)

  

(64,096,276

)

 

Machinery - Diversified - (1.55%)

 

Middleby Corp. (The)

  

(150,737

)

  

(24,763,074

)

 

Oil & Gas - (1.01%)

 

Cabot Oil & Gas Corp.

  

(981,389

)

  

(16,094,780

)

 

Pharmaceuticals - (0.34%)

 

AstraZeneca Plc, ADR

  

(94,920

)

  

(5,388,608

)

 

Real Estate Investment Trusts - (1.12%)

 

Equity Commonwealth

  

(650,357

)

  

(17,845,796

)

 

Semiconductors - (2.15%)

 

Advanced Micro Devices, Inc.

  

(429,132

)

  

(34,364,891

)

 

Software - (1.61%)

 

salesforce.com, Inc.

  

(108,182

)

  

(25,758,134

)

 

Transportation - (1.56%)

 

Canadian National Railway Co.

  

(221,652

)

  

(24,951,366

)

 
TOTAL COMMON STOCKS
(Proceeds $255,447,000)
  

(252,316,520

)

 

EXCHANGE-TRADED FUNDS - (0.10%)

 

Equity Fund - (0.10%)

 

iShares MSCI Australia ETF

  

(56,623

)

  

(1,514,099

)

 
TOTAL EXCHANGE-TRADED FUNDS
(Proceeds $1,384,968)
  

(1,514,099

)

 
TOTAL SECURITIES SOLD SHORT
(Proceeds $256,831,968)
 

$

(253,830,619

)

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
14


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

EQUITY SWAP CONTRACTS

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 Aggreko
Plc
 
 
 
 
 Paid
1 Month
SONIA
Plus
94 bps
(0.950%)
 




08/05/2021
 

$

  

$

  

$

  



GBP
3,998,206
 

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Analog
Devices,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/12/2021
  

   

   

  




USD
74,834,073
  

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 AstraZeneca
Plc
 
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
56 bps
(-0.500%)
 





08/12/2021
  

   

   

  




USD
35,888,461
  

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Cooper
Tire &
Rubber
Co.
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/12/2021
  

   

   

  




USD
9,856,486
  

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 iShares
Russell
2000
ETF
 
 
 
 Received
1 Month-
Federal
Rate
Minus
61 bps
(-0.550%)
 




08/12/2021
  

   

   

  




USD
3,538,095
  

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Herman
Miller,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 




08/12/2021
  

   

   

  




USD
2,610,597
  

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
15


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 Realty
Income
Corp.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 

08/12/2021

 

$

  

$

  

$

  




USD
25,057,861
 

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 S&P
Global,
Inc.
  
  
  
  
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/12/2021
 





 





 





 




USD
73,384,944
  

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 STERIS
Plc
 
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/12/2021
  

   

   

  




USD
24,809,510
  

  
Goldman
Sachs &
Co./
Monthly
 
 
 
 Aggreko
Plc
 
 
 
 
 
 Paid
1 Month
GBP
LIBOR
Plus
45 bps
(0.502%)
 





03/09/2022
  

   

   

  




GBP
6,322,873
  

  
Goldman
Sachs &
Co./
Monthly
 
 
 
 Gamesys
Group
Plc
 
 
 
 
 Paid
1 Month
GBP
LIBOR
Plus
85 bps
(0.897%)
 





03/29/2022
  

   

   

  




GBP
6,626,326
  

  
Goldman
Sachs &
Co./
Monthly
 
 
 
 Arrow
Global
Group Plc
 
 
 
 
 Paid
1 Month
GBP
LIBOR
Plus
85 bps
(0.903%)
 





04/04/2022
  

   

   

  




GBP
4,538,780
  

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
16


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Goldman
Sachs &
Co./
Monthly
 
 
 Equiniti
Group
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
95 bps
(1.000%)
 




05/10/2022
 

$

  

$

  

$

  



GBP
4,456,367
 

$

  
Goldman
Sachs &
Co./
Monthly
 
 
 UDG
Healthcare
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
60 bps
(0.650%)
 




05/16/2022
  

   

   

  



GBP
11,183,547
  

  
Goldman
Sachs &
Co./
Monthly
 
 
 John Laing
Group Plc
 
 
 
 
 Paid
1 Month
SONIA
Plus
49 bps
(0.540%)
 




05/24/2022
  

   

   

  



GBP
5,626,799
  

  
Goldman
Sachs &
Co./
Monthly
 
 
 Spire
Healthcare
Group Plc
 
 
 
 Paid
1 Month
SONIA
Plus
90 bps
(0.950%)
 




05/30/2022
  

   

   

  



GBP
5,675,413
  

  
Goldman
Sachs &
Co./
Monthly
 
 
 Vectura
Group Plc
 
 
 
 
 Paid
1 Month
SONIA
Plus
47 bps
(0.500%)
 




05/30/2022
  

   

   

  



GBP
5,855,317
  

  
Goldman
Sachs &
Co./
Monthly
 
 
 Dialog
Semiconductor
Plc
 
 
 
 Paid
1 Month
EONIA
Plus
45 bps
(0.936%)
 




06/01/2022
  

   

   

  



EUR
3,257,042
  

  
Morgan
Stanley &
Co./
Monthly
 
 
 RSA
Insurance
Group Ltd.
 
 
 
 Paid
1 Month-
SONIA
Plus
54 bps
(0.550%)
 




08/05/2022
  

   

   

  



GBP
15,238,762
  

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
17


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 St. Modwen
Properties
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
94 bps
(0.940%)
 




08/05/2022
 

$

  

$

  

$

  



GBP
7,156,116
 

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 Natixis S.A.
 
 
 
 
 
 Paid
1 Month
EONIA
Plus
50 bps
(0.021%)
 




02/10/2023
  

   

   

  



EUR
7,158,211
  

  
Morgan
Stanley &
Co./
Monthly
 
 
 Adapteo
Oyj
 
 
 
 
 Paid
1 Month
SEK LIBOR
Plus
50 bps
(1.443%)
 




05/17/2023
  

   

   

  



SEK
32,920,936
  

  
  

 

 

 

 

 

 

 

 

 

 

$

  

 

 

$

  

OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Appreciation
 

EUR

17,767,800

  

USD

21,338,495

  

Morgan Stanley & Co.

 

06/15/2021

 

$

394,245

  

GBP

16,871,500

  

USD

23,572,328

  

Morgan Stanley & Co.

 

06/15/2021

  

397,289

  

USD

1,175,440

  

NOK

9,704,700

  

Morgan Stanley & Co.

 

06/15/2021

  

8,358

  

NZD

2,550,600

  

USD

1,836,714

  

Morgan Stanley & Co.

 

06/15/2021

  

19,680

  

USD

58,334

  

NZD

80,100

  

Morgan Stanley & Co.

 

06/15/2021

  

35

  
  

$

819,607

  
Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Depreciation
 

USD

126,867,110

  

EUR

105,711,600

  

Morgan Stanley & Co.

 

06/15/2021

 

$

(2,434,361

)

 

USD

23,573,133

  

GBP

16,871,500

  

Morgan Stanley & Co.

 

06/15/2021

  

(396,484

)

 

NOK

1,007,800

  

USD

121,954

  

Morgan Stanley & Co.

 

06/15/2021

  

(756

)

 

USD

10,145,562

  

NOK

85,056,700

  

Morgan Stanley & Co.

 

06/15/2021

  

(83,302

)

 

USD

6,118,324

  

NZD

8,477,200

  

Morgan Stanley & Co.

 

06/15/2021

  

(51,613

)

 
  

$

(2,966,516

)

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
18


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

The following is a summary of investments classified by country exposure:

Country

 

% of Net Assets(a)

 

United Kingdom

  

9.56

%

 

Germany

  

1.56

%

 

France

  

1.48

%

 

Finland

  

1.10

%

 

Norway

  

0.70

%

 

Spain

  

0.59

%

 

Austria

  

0.59

%

 

Italy

  

0.58

%

 

Netherlands

  

0.47

%

 

New Zealand

  

0.26

%

 

Ireland

  

0.24

%

 

Australia

  

0.00

%(b)

 

United States

  

82.00

%

 

Other Assets in Excess of Liabilities

  

0.87

%

 
   

100.00

%

 

(a)  These percentages represent long positions only and are not net of short positions.

(b)  Less than 0.005% of net assets.

Abbreviations:

ADR - American Depositary Receipt

AG - Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders.

ASA - Allmennaksjeselskap is the Norwegian term for public limited company.

bps - Basis Points. 100 Basis Points is equal to 1 percentage point.

B.V. - Besloten Vennootschap is the Dutch term for private limited liability company.

CVR - Contingent Value Rights

EONIA - Euro OverNight Index Average

ETF - Exchange-Traded Fund

EUR - Euro

GBP - British pound

GBP LIBOR - London Interbank Offered Rate denominated in British Pounds

LLC - Limited Liability Company

Ltd. - Limited

MSCI - Morgan Stanley Capital International

NOK - Norwegian krone

N.V. - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.

NZD - New Zealand dollar

Oyj - Osakeyhtio is the Finnish equivalent of a public limited company.

PIPE - Private investment in public equity

Plc - Public Limited Company

SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.

See Notes to Financial Statements.

Annual Report | May 31, 2021
19


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

SE - SE Regulation. A European Company which can operate on a Europe-wide basis and be governed by Community law directly applicable in all Member States

SEK - Swedish krona

SEK LIBOR - London Interbank Offered Rate denominated in Swedish Krona

SONIA - Sterling OverNight Index Average

S&P - Standard & Poor's

SpA - Societa per Azione

SPAC - Special Purpose Acquisition Company

USD - United States Dollar

The following table summarizes the Arbitrage Fund's investments and derivative financial instruments categorized in the fair value hierarchy as of May 31, 2021:

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 

Common Stocks

 

Aerospace & Defense

 

$

19,043,763

  

$

  

$

  

$

19,043,763

  

Auto Parts & Equipment

  

2,985,328

   

6,268,362

   

   

9,253,690

  

Banks

  

19,092,058

   

   

   

19,092,058

  

Biotechnology

  

60,428,475

   

   

   

60,428,475

  

Chemicals

  

77,154,508

   

   

   

77,154,508

  

Commercial Services

  

71,760,761

   

   

   

71,760,761

  

Construction Materials

  

23,836,912

   

   

   

23,836,912

  

Distribution/Wholesale

  

12,073,149

   

   

   

12,073,149

  

Electronics

  

56,709,054

   

   

   

56,709,054

  

Engineering & Construction

  

6,568,508

   

   

20,772,090

   

27,340,598

  

Forest Products & Paper

  

18,420,846

   

   

   

18,420,846

  

Healthcare - Products

  

51,225,070

   

   

   

51,225,070

  

Healthcare - Services

  

69,690,348

   

   

   

69,690,348

  

Housewares

  

2,421,452

   

   

   

2,421,452

  

Insurance

  

65,424,289

   

   

   

65,424,289

  

Internet

  

77,865,812

   

   

   

77,865,812

  

Lodging

  

43,363,399

   

   

   

43,363,399

  

Machinery - Diversified

  

36,847,824

   

   

   

36,847,824

  

Media

  

9,485,418

   

   

   

9,485,418

  

Office Furnishings

  

5,513,300

   

   

   

5,513,300

  

Oil & Gas

  

16,561,826

   

   

   

16,561,826

  

Pharmaceuticals

  

23,624,392

   

   

   

23,624,392

  

Real Estate

  

28,070,123

   

   

   

28,070,123

  

Real Estate Investment Trusts

  

43,023,861

   

   

   

43,023,861

  

Retail

  

24,655,634

   

   

11,145,315

   

35,800,949

  

Semiconductors

  

118,500,074

   

   

   

118,500,074

  

Software

  

162,225,334

   

   

53,299,840

   

215,525,174

  

Telecommunications

  

22,695,703

   

   

   

22,695,703

  

Transportation

  

58,442,324

   

   

   

58,442,324

  

Trucking & Leasing

  

3,883,246

   

   

   

3,883,246

  

Water

  

15,130,146

   

   

   

15,130,146

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
20


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Rights

 

$

  

$

943,394

  

$

1,135,875

  

$

2,079,269

  

Corporate Bonds**

  

   

5,148,247

   

   

5,148,247

  

Convertible Corporate Bonds

 

Auto Manufacturers

  

   

2,170,464

   

   

2,170,464

  

Private Investments

  

   

   

6,433,715

   

6,433,715

  

Mutual Funds

  

75,829,593

   

   

   

75,829,593

  

Private Investments

  

   

2,128,929

   

1,016,499

   

3,145,428

  

Warrants

  

302,490

   

   

   

302,490

  

Purchased Options

  

1,368,634

   

   

   

1,368,634

  

Short-Term Investments

  

149,366,777

   

   

   

149,366,777

  

TOTAL

 

$

1,473,590,431

  

$

16,659,396

  

$

93,803,334

  

$

1,584,053,161

  

Other Financial Instruments***

 

Assets

 
Forward Foreign Currency
Exchange Contracts
 

$

  

$

819,607

  

$

  

$

819,607

  

Equity Swaps

  

0

   

   

   

0

  

Liabilities

 

Common Stocks**

  

(252,316,520

)

  

   

   

(252,316,520

)

 

Exchange-Traded Funds

  

(1,514,099

)

  

   

   

(1,514,099

)

 
Forward Foreign Currency
Exchange Contracts
  

   

(2,966,516

)

  

   

(2,966,516

)

 

TOTAL

 

$

(253,830,619

)

 

$

(2,146,909

)

 

$

  

$

(255,977,528

)

 

*  Refer to footnote 2 where leveling hierarchy is defined.

**  Refer to Portfolio of Investments for sector information.

***  Other financial instruments are instruments such as securities sold short, equity swaps and forward foreign currency exchange contracts.

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended May 31, 2021:

Investments
in Securities
 Balance as of
May 31, 2020
 Realized
Gain
(Loss)
 Change in
Unrealized
Appreciation
(Depreciation)
 

Purchases

 Sales
Proceeds
 Transfers
into
Level 3
 Transfers
out of
Level 3
 
Balance as of
May 31, 2021
 Net change in
Unrealized
Appreciation
(Depreciation)
from
investments
still held as of
May 31, 2021
 
Common
Stocks
 

$

65,345,698

  

$

4,494,531

  

$

4,969,381

  

$

79,014,224

  

$

(68,606,589

)

 

$

  

$

  

$

85,217,245

  

$

5,342,715

  

Rights

  

840,340

   

567,862

   

(398,648

)

  

1,059,966

   

(933,645

)

  

   

   

1,135,875

   

(398,648

)

 
Convertible
Corporate
Bonds
  

   

   

(704,285

)

  

7,138,000

   

   

   

   

6,433,715

   

(704,285

)

 
Private
Investments
  

   

   

(16,985

)

  

1,033,484

   

   

   

   

1,016,499

   

(16,985

)

 

Total

 

$

66,186,038

  

$

5,062,393

  

$

3,849,463

  

$

88,245,674

  

$

(69,540,234

)

 

$

  

$

  

$

93,803,334

  

$

4,222,797

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
21


Arbitrage Fund  Portfolio of Investments (continued)

May 31, 2021

The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of May 31, 2021:

Investments in
Securities
 Fair Value at
May 31, 2021
 Valuation
Technique
 Unobservable
Input
 Range of
Values
 Weighted
Average
 

Common Stocks

 

$

85,217,245


 Deal Value,
Liquidation
Value
 
 Final
determination
on Dissent, Final
Liquidation Value
 $20.14-$36.50, 0 AUD
 
 
 
 $29.08, 0


 

Rights

 1,135,875


 Discounted,
probability
adjusted
value
 Discount Rate,
Probability
 
 
 10%, 38.28%-42.25%
 
 
 
 10%, 41.37%


 
Convertible
Corporate
Bonds
 6,433,715

 Discounted
Cash Flow
 
 Spread
 
 
 800 Bps
 
 
 800 Bps

 
Private
Investments
 1,016,499
 Cost
 
 Cost
 
 $.9091-$1
 
 $0.9351
 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
22


Water Island Event-Driven Fund  Manager Commentary

May 31, 2021 (Unaudited)

Water Island Event-Driven Fund (formerly known as Water Island Diversified Event-Driven Fund) |

Tickers: AEDNX, AEDFX, AGEAX

The Fund's Goal and Main Investments

The Fund seeks to provide capital growth by investing in credit and equity securities involved in specific corporate events, with a focus on low volatility and low correlation relative to the broader capital markets.

Investment Strategy

The Fund's investment process follows a disciplined, fundamental approach that values risk mitigation while identifying compelling risk/reward opportunities available to us as we screen catalyst-driven corporate events, such as mergers and acquisitions, restructurings, refinancings, recapitalizations, spin-offs, litigation, regulatory changes, and bankruptcy. We analyze these events through three core approaches: merger arbitrage, equity special situations, and credit opportunities. We seek to generate investment returns that have low volatility and low correlation compared to the broader capital markets. We do not manage against any particular benchmark and believe that capital preservation in difficult markets is as important as generating positive returns within our low correlated, low volatility event-driven investment strategy. This process and approach have been an integral part of the culture at Water Island Capital since the firm's inception.

Fiscal Year Highlights

Water Island Event-Driven Fund Class I (AEDNX) returned 14.51% for the fiscal year ending May 31, 2021. Both hard and soft catalysts investments contributed to returns overall, as did all three sub-strategies – merger arbitrage, credit opportunities, and equity special situations. Returns were driven predominantly by the Americas region, though investments in both Europe and the Asia-Pacific region contributed as well. The Fund's top-performing sectors were financials and health care. There were no negative performers on a sector basis, however, the portfolio's broad market hedges did detract from returns.

The Fund's top performing deal for the period was our position in Pacific Biosciences of California. In November 2018, Illumina – a U.S. developer of tools for DNA sequencing and analysis – agreed to acquire Pacific Biosciences – a U.S. DNA sequencing technology firm – for $1.1 billion in cash. The transaction ultimately failed to secure regulatory approval, leading to its termination at the start of 2020, though we opted to maintain our exposure to Pacific Biosciences as we believed the company was not only trading below our fundamental valuation post-break, but also remained an attractive takeout candidate. (In fact, during the regulatory review process it was revealed Illumina's interest in the company was driven in part by a belief that no fewer than four of its major competitors were potential suitors of Pacific Biosciences.) In Q3 2020, following the appointment of a new CEO and improving business prospects for the company, the company's shares traded higher and we exited our position at a gain.

The second-best performer was our position in the acquisition of Acacia Communications by Cisco Systems. In July 2019, Cisco – a U.S.-based provider of communications and networking equipment – reached an agreement to acquire Acacia – a U.S.-based manufacturer of fiber-optic transmission hardware – for $3.1 billion in cash. Due to a lengthy regulatory review process in China, the deal arrived at its termination date in early January without having received all required approvals. Acacia, which had seen its business improve significantly in the time since the deal's announcement, attempted to exercise its right to terminate the transaction. Cisco was clearly committed to acquiring the asset, however, as it sought an injunction preventing Acacia from terminating the deal and – just three days later – the companies announced they had arrived at

Annual Report | May 31, 2021
23


Water Island Event-Driven Fund  Manager Commentary (continued)

May 31, 2021 (Unaudited)

an amended agreement. Cisco's revised offer was worth $5.0 billion, more than 60% higher than the original terms. The deal received all remaining regulatory approvals and completed successfully in March, leading to gains for the fund.

Conversely, the top detractor in the portfolio for the period was our position in the merger of Gilat Satellite Networks and Comtel Telecommunications. In January 2020, Gilat – an Israel-based provider of satellite communications – agreed to be acquired by Comtech – a U.S. manufacturer of communications equipment – for $569 million in cash and stock. Both companies saw their businesses impacted by the COVID-19 pandemic and subsequently sued each other – Comtech in an attempt to terminate the merger, and Gilat in an attempt to bind Comtech to it. In Q4 2020, rather than pursue their lawsuits, the companies agreed to call off the deal and dismiss all pending litigation, leading to losses in the fund.

The Fund's second-worst performer was our position in the acquisition of Fitbit by Google. In November 2019, Alphabet Inc – via subsidiary Google – agreed to acquire Fitbit – a U.S.-based manufacturer of fitness-tracking devices and mobile apps – in a transaction worth $1.8 billion in cash. We held a position in the deal at various points during the timeline, though regulatory concerns around Google's ownership of sensitive user health data led to volatility in the spread, contributing to losses for the Fund.

www.arbitragefunds.com | 1-800-295-4485
24


Water Island Event-Driven Fund  Portfolio Information

May 31, 2021 (Unaudited)

Performance (annualized returns as of May 31, 2021)

 One
Year
 Five
Year
 Ten
Year
 Since
Inception*
 

Water Island Event-Driven Fund Class R

  

14.14

%

  

5.26

%

  

2.73

%

  

2.88

%

 

Water Island Event-Driven Fund Class I

  

14.51

%

  

5.54

%

  

2.99

%

  

3.14

%

 

Water Island Event-Driven Fund, Class A**

  

14.20

%

  

5.30

%

  

N/A

   

2.85

%

 
ICE BofA Merrill Lynch U.S. 3-Month
Treasury Bill Index
  

0.11

%

  

1.18

%

  

0.63

%

  

0.60

%

 

Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance, and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from the amount reported in the Financial Highlights. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com.

* Class R and Class I inception: 10/1/10; Class A inception: 6/1/13. The "Since Inception" returns for securities indices are for the inception date of Class R and Class I shares.

** Class A shares are subject to a maximum front-end sales load of 3.25% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $250,000 purchased without a front-end sales charge and redeemed within 18 months of purchase.

The Total Annual Fund Operating Expenses for Class R, Class I and Class A are 2.06%, 1.81% and 2.06%, respectively. The Adviser has agreed to waive fees (not including the effects of interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, taxes, or other extraordinary expenses) in excess of 1.69%, 1.44% and 1.69% for Class R, Class I and Class A, respectively, until at least September 30, 2022. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.

The ICE BofA Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.

An investor may not invest directly in an index.

Annual Report | May 31, 2021
25


Water Island Event-Driven Fund  Portfolio Information (continued)

May 31, 2021 (Unaudited)

Growth of $10,000 Investment

The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund over ten years. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

  

Sector Weighting

The following chart shows the sector weightings of the Water Island Event-Driven Fund's investments (including short sales and excluding derivatives) as of the report date.

* Concentration Risk: If a large percentage of mergers or event-driven investment opportunities taking place within the U.S. are within one industry over a given period of time, the Fund may invest a large portion of its assets in securities of issuers in a single industry for that period of time. During such a period of concentration, the Fund may be subject to greater volatility with respect to its portfolio securities than a fund that is more broadly diversified.

www.arbitragefunds.com | 1-800-295-4485
26


Water Island Event-Driven Fund  Portfolio of Investments

May 31, 2021

  

Shares

 

Value

 

COMMON STOCKS - 95.71%

 

Aerospace & Defense - 1.93%

 

Aerojet Rocketdyne Holdings, Inc.(a)

  

54,335

  

$

2,632,530

  

Teledyne Technologies, Inc.(b)

  

1

   

400

  
   

2,632,930

  

Auto Parts & Equipment - 0.63%

 

Akasol AG(b)

  

3,724

   

544,948

  

Goodyear Tire & Rubber Co. (The)(a)(b)

  

16,208

   

321,404

  
   

866,352

  

Banks - 1.06%

 

Sbanken ASA(c)

  

117,197

   

1,440,614

  

Biotechnology - 5.08%

 

Alexion Pharmaceuticals, Inc.(a)(b)

  

39,321

   

6,942,122

  

Chemicals - 6.11%

 

Ferro Corp.(b)

  

98,547

   

2,128,615

  

Recticel SA

  

41,175

   

739,104

  

Tikkurila Oyj

  

28,972

   

1,197,684

  

W R Grace & Co.(a)

  

62,364

   

4,273,181

  
   

8,338,584

  

Commercial Services - 5.07%

 

IHS Markit Ltd.(a)

  

65,719

   

6,920,868

  

Construction Materials - 1.81%

 

Forterra, Inc.(b)

  

56,115

   

1,311,969

  

Tarkett SA(b)

  

47,303

   

1,165,209

  
   

2,477,178

  

Distribution/Wholesale - 0.94%

 

Core-Mark Holding Co., Inc.

  

28,115

   

1,289,354

  

Electronics - 5.29%

 

Coherent, Inc.(a)(b)

  

27,503

   

7,222,563

  

Engineering & Construction - 1.48%

 

Aegion Corp.(b)(d)

  

49,381

   

1,481,430

  

Signature Aviation Plc(b)

  

97,074

   

545,540

  
   

2,026,970

  

Entertainment - 0.22%

 

Cineplex, Inc.(b)

  

23,133

   

300,640

  

Forest Products & Paper - 1.24%

 

Domtar Corp.(b)

  

31,269

   

1,695,718

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
27


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

COMMON STOCKS - 95.71% (Continued)

 

Healthcare - Products - 2.56%

 

Luminex Corp.

  

57,942

  

$

2,137,481

  

Soliton, Inc.(b)

  

61,176

   

1,363,001

  
   

3,500,482

  

Healthcare - Services - 3.86%

 

Magellan Health, Inc.(a)(b)

  

10,659

   

1,003,971

  

PPD, Inc.(a)(b)

  

92,423

   

4,262,549

  
   

5,266,520

  

Insurance - 4.12%

 

Hartford Financial Services Group, Inc. (The)

  

5,343

   

349,165

  

Willis Towers Watson Plc

  

20,196

   

5,278,427

  
   

5,627,592

  

Internet - 3.72%

 

Cerved Group SpA(b)

  

82,393

   

987,660

  

Grubhub, Inc.(b)(e)

  

11,361

   

682,910

  

Proofpoint, Inc.(a)(b)

  

19,773

   

3,416,972

  
   

5,087,542

  

Lodging - 3.59%

 

Crown Resorts Ltd.(b)

  

33,674

   

334,355

  

Extended Stay America, Inc.(a)

  

232,052

   

4,573,745

  
   

4,908,100

  

Machinery - Diversified - 2.87%

 

Welbilt, Inc.(b)

  

158,544

   

3,917,622

  

Office Furnishings - 0.35%

 

Knoll, Inc.(a)

  

18,415

   

478,790

  

Oil & Gas - 1.30%

 

Cimarex Energy Co.

  

26,258

   

1,778,979

  

Pharmaceuticals - 1.07%

 

PRA Health Sciences, Inc.(b)

  

8,588

   

1,467,861

  

Real Estate - 1.77%

 

CA Immobilien Anlagen AG

  

18,714

   

813,561

  

Deutsche Wohnen SE

  

25,113

   

1,598,575

  
   

2,412,136

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
28


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

COMMON STOCKS - 95.71% (Continued)

 

Real Estate Investment Trusts - 3.87%

 

Globalworth Real Estate Investments Ltd.

  

77,947

  

$

682,476

  

Monmouth Real Estate Investment Corp.

  

104,731

   

1,973,132

  

VEREIT, Inc.

  

55,396

   

2,635,188

  
   

5,290,796

  

Retail - 2.59%

 

At Home Group, Inc.(b)

  

70,861

   

2,660,122

  

Foundation Building Materials, Inc.(b)(d)

  

43,264

   

871,337

  
   

3,531,459

  

Semiconductors - 9.70%

 

Dialog Semiconductor Plc(b)

  

21,600

   

1,718,429

  

Magnachip Semiconductor Corp.(b)(e)

  

15,769

   

373,725

  

Maxim Integrated Products, Inc.(a)

  

42,399

   

4,325,122

  

Photon Control, Inc.(b)

  

454,895

   

1,351,826

  

Xilinx, Inc.(a)

  

43,124

   

5,476,748

  
   

13,245,850

  

Software - 16.86%

 

Change Healthcare, Inc.(a)(b)

  

238,624

   

5,593,347

  

MINDBODY, Inc., Class A(b)(d)

  

48,463

   

1,768,900

  

Nuance Communications, Inc.(b)(e)

  

103,319

   

5,465,575

  

Pluralsight, Inc., Class A(b)(d)

  

85,955

   

1,933,987

  

Slack Technologies, Inc., Class A(a)(b)

  

148,656

   

6,546,810

  

Talend SA, ADR(a)(b)

  

26,377

   

1,713,714

  
   

23,022,333

  

Special Purpose Acquisition Companies - 0.30%

 

Bull Horn Holdings Corp.(b)

  

40,295

   

413,024

  

Telecommunications - 1.45%

 

ORBCOMM, Inc.(a)(b)

  

176,664

   

1,976,870

  

Transportation - 3.68%

 

Kansas City Southern(a)

  

16,878

   

5,024,243

  

Water - 1.19%

 

Suez SA(b)

  

66,922

   

1,628,896

  
TOTAL COMMON STOCKS
(Cost $125,415,244)
  

130,732,988

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
29


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

RIGHTS(b) - 0.09%

 

Bristol-Myers Squibb Co. CVR

  

67,803

  

$

74,583

  

Stemline Therapeutics, Inc. CVR(d)

  

121,306

   

43,889

  
TOTAL RIGHTS
(Cost $150,812)
  

118,472

  

 

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS(c) - 2.19%

 

Entertainment - 1.21%

 
Stars Group Holdings B.V. /
Stars Group US
Co-Borrower LLC
 

07/15/2026

  

7.000

%

 

$

1,585,000

  

$

1,648,812

  

Telecommunications - 0.98%

 

Cincinnati Bell, Inc.

 

07/15/2024

  

7.000

%

  

1,305,000

   

1,344,150

  
TOTAL CORPORATE BONDS
(Cost $2,981,618)
  

2,992,962

  

CONVERTIBLE CORPORATE BONDS - 2.45%

 

Auto Manufacturers - 0.24%

 

Lightning eMotors, Inc.(c)

 

05/15/2024

  

7.500

%

  

403,000

   

336,940

  

Entertainment - 0.36%

 

Cineplex, Inc.(c)

 

09/30/2025

  

5.750

%

  

392,000

   

490,022

  

Pharmaceuticals - 1.06%

 

Dermira, Inc.

 

05/15/2022

  

3.000

%

  

1,430,000

   

1,444,300

  

Private Investments(d)(f) - 0.79%

 

GigCapital2 PIPE

 

06/15/2026

  

6.250

%

  

616,000

   

560,061

  

Kaleyra PIPE

 

06/01/2026

  

6.125

%

  

584,000

   

521,676

  
         

1,081,737

  
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $3,328,840)
  

3,352,999

  

 

  

Shares

 

Value

 

WARRANTS(b) - 0.03%

 

Auto Manufacturers - 0.03%

 
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 07/02/2025
  

35,043

  

$

46,957

  
TOTAL WARRANTS
(Cost $0)
  

46,957

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
30


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

PRIVATE INVESTMENTS(b) - 0.32%

 

Fast Capital LLC(d)(f)

  

22,800

  

$

22,800

  

Fuse LLC(d)(f)

  

56,600

   

51,455

  

Fuse Sponsor Capital, Z2 Shares(d)(f)

  

5,660

   

5,145

  

GigCapital2 PIPE Equity

  

8,340

   

84,067

  

Kaleyra PIPE Equity

  

22,292

   

270,848

  
TOTAL PRIVATE INVESTMENTS
(Cost $442,777)
  

434,315

  

 

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(b) - 0.12%

 

Call Options Purchased - 0.10%

 

Advanced Micro Devices, Inc.

 

06/2021

 

$

90.00

  

$

1,193,192

   

149

  

$

3,874

  

Grubhub, Inc.

 
  

06/2021

  

75.00

   

198,363

   

33

   

578

  
  

06/2021

  

77.50

   

222,407

   

37

   

1,480

  
  

06/2021

  

80.00

   

312,572

   

52

   

780

  

Herman Miller, Inc.

 

06/2021

  

50.00

   

282,020

   

59

   

3,540

  

II-VI, Inc.

 

06/2021

  

65.00

   

1,589,932

   

236

   

93,220

  
Magnachip
Semiconductor Corp.
 

06/2021

  

25.00

   

374,460

   

158

   

10,665

  

Middleby Corp. (The)

 
  

06/2021

  

180.00

   

213,564

   

13

   

2,795

  
  

06/2021

  

185.00

   

476,412

   

29

   

1,378

  
  

06/2021

  

190.00

   

229,992

   

14

   

336

  
  

06/2021

  

195.00

   

213,564

   

13

   

611

  
  

07/2021

  

175.00

   

262,848

   

16

   

6,000

  
  

07/2021

  

180.00

   

213,564

   

13

   

3,607

  
Nuance
Communications, Inc.
 

06/2021

  

55.00

   

1,243,150

   

235

   

2,350

  
TOTAL CALL OPTIONS PURCHASED
(Cost $231,086)
   

131,214

 

See Notes to Financial Statements.

Annual Report | May 31, 2021
31


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(b) - 0.12% (Continued)

 

Put Options Purchased - 0.02%

 

ChargePoint Holdings, Inc.

 

08/2021

 

$

17.50

  

$

141,230

   

58

  

$

4,669

  

Churchill Capital Corp. IV

 

07/2021

  

17.50

   

122,264

   

62

   

9,827

  
Defiance NextGen
SPAC Derived ETF
 
  

08/2021

  

20.00

   

199,600

   

80

   

5,600

  
  

08/2021

  

21.00

   

199,600

   

80

   

7,600

  

Stem, Inc.

 

07/2021

  

17.50

   

187,516

   

74

   

3,145

  
TOTAL PUT OPTIONS PURCHASED
(Cost $81,011)
  

30,841

  
TOTAL PURCHASED OPTIONS
(Cost $312,097)
  

162,055

  
Total Investments - 100.91%
(Cost $132,631,388)
  

137,840,748

  

 

Liabilities in Excess of Other Assets - (0.91%)(g)

  

(1,247,072

)

 

NET ASSETS - 100.00%

 

$

136,593,676

  

Portfolio Footnotes

(a)  Security, or a portion of security, is being held as collateral for short sales or forward foreign currency exchange contracts. At May 31, 2021, the aggregate fair market value of those securities was $49,011,616, representing 35.88% of net assets.

(b)  Non-income-producing security.

(c)  Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of May 31, 2021, these securities had a total value of $5,260,538 or 3.85% of net assets.

(d)  Security fair valued using significant unobservable inputs and classified as a Level 3 security. As of May 31, 2021, the total fair market value of these securities was $7,260,680, representing 5.32% of net assets.

(e)  Underlying security for a written/purchased call/put option.

(f)  Represents a holding that is a direct investment into a private company and is not a listed or publicly traded entity.

(g)  Includes cash held as collateral for short sales.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
32


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (18.93%)

 

Electronics - (1.16%)

 

II-VI, Inc.

  

(23,606

)

 

$

(1,590,336

)

 

Food - (0.45%)

 

Performance Food Group Co.

  

(12,348

)

  

(619,005

)

 

Healthcare - Services - (0.58%)

 

ICON Plc

  

(3,543

)

  

(792,782

)

 

Insurance - (4.05%)

 

Aon Plc, Class A

  

(21,812

)

  

(5,526,506

)

 

Machinery - Diversified - (1.93%)

 

Middleby Corp. (The)

  

(16,056

)

  

(2,637,680

)

 

Oil & Gas - (1.27%)

 

Cabot Oil & Gas Corp.

  

(105,415

)

  

(1,728,806

)

 

Real Estate Investment Trusts - (1.41%)

 

Equity Commonwealth

  

(70,167

)

  

(1,925,383

)

 

Semiconductors - (4.36%)

 

Advanced Micro Devices, Inc.

  

(74,320

)

  

(5,951,546

)

 

Software - (2.01%)

 

salesforce.com, Inc.

  

(11,531

)

  

(2,745,531

)

 

Telecommunications - (0.14%)

 

Cincinnati Bell, Inc.

  

(12,017

)

  

(185,062

)

 

Transportation - (1.57%)

 

Canadian National Railway Co.

  

(19,055

)

  

(2,145,021

)

 
TOTAL COMMON STOCKS
(Proceeds $26,739,556)
  

(25,847,658

)

 

EXCHANGE-TRADED FUNDS - (0.07%)

 

Equity Fund - (0.07%)

 

iShares Russell 2000 ETF

  

(441

)

  

(99,445

)

 
TOTAL EXCHANGE-TRADED FUNDS
(Proceeds $99,765)
  

(99,445

)

 
TOTAL SECURITIES SOLD SHORT
(Proceeds $26,839,321)
 

$

(25,947,103

)

 

See Notes to Financial Statements.

Annual Report | May 31, 2021
33


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

EQUITY SWAP CONTRACTS

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 Analog
Devices,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/19/2021
 

$

  

$

  

$

  

USD

4,396,631

  

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 AstraZeneca
Plc
 
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
56 bps
(-0.500%)
 





08/19/2021
  

   

   

  

USD

4,741,941

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Cooper
Tire &
Rubber Co.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/19/2021
  

   

   

  

USD

1,061,180

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 iShares
Russell
2000 ETF
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
61 bps
(-0.550%)
 





08/19/2021
  

   

   

  

USD

441,304

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Herman
Miller,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/19/2021
  

   

   

  

USD

281,685

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Realty
Income
Corp.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/19/2021
  

   

   

  

USD

2,669,515

   

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
34


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 S&P
Global,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





08/19/2021
 

$

  

$

  

$

  

USD

7,077,495

  

$

  
Goldman
Sachs &
Co./
Monthly
 
 
 
 Aggreko
Plc
 
 
 
 
 
 Paid
1 Month
GBP
LIBOR
Plus
45 bps
(0.502%)
 





03/09/2022
  

   

   

  

GBP

684,178

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 
 Arrow
Global
Group
Plc
 
 
 
 Paid
1 Month
GBP
LIBOR
Plus
85 bps
(0.903%)
 





04/04/2022
  

   

   

  

GBP

391,687

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 
 Gamesys
Group
Plc
 
 
 
 
 Paid
1 Month
GBP
LIBOR
Plus
85 bps
(0.897%)
 





04/05/2022
  

   

   

  

GBP

347,804

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Equiniti
Group
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
95 bps
(1.000%)
 




05/10/2022
  

   

   

  

GBP

381,270

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 UDG
Healthcare
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
95 bps
(1.00%)
 




05/16/2022
  

   

   

  

GBP

1,442,826

   

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
35


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Goldman
Sachs &
Co./
Monthly
 
 
 John
Laing
Group
Plc
 
 
 Paid
1 Month
SONIA
Plus
49 bps
(0.540%)
 




05/24/2022
 

$

  

$

  

$

  

GBP

486,139

  

$

  
Goldman
Sachs &
Co./
Monthly
 
 
 Spire
Healthcare
Group
Plc
 
 
 Paid
1 Month
SONIA
Plus
90 bps
(0.950%)
 




05/30/2022
  

   

   

  

GBP

485,790

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Vectura
Group
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
47 bps
(0.520%)
 




05/30/2022
  

   

   

  

GBP

743,956

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Dialog
Semiconductor
Plc
 
 
 
 Paid
1 Month
EONIA
Plus
45 bps
(0.936%)
 




06/01/2022
  

   

   

  

EUR

401,683

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 Aggreko
Plc
 
 
 
 
 Paid
1 Month
SONIA
Plus
94 bps
(0.950%)
 




11/04/2022
  

   

   

  

GBP

420,122

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 Gamesys
Group
Plc
 
 
 
 Paid
1 Month-
SONIA
Plus
94 bps
(0.950%)
 




11/04/2022
  

   

   

  

GBP

229,376

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 St. Modwen
Properties
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
94 bps
(0.950%)
 




11/04/2022
  

   

   

  

GBP

911,510

   

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
36


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 Natixis S.A.
 
 
 
 
 
 Paid
1 Month
EONIA
Plus
50 bps
(0.021%)
 




02/10/2023
 

$

  

$

  

$

  

EUR

931,688

  

$

  
            

$

      

$

  

OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Appreciation
 

USD

343,936

  

AUD

442,800

  

Morgan Stanley & Co.

 

06/15/2021

 

$

1,230

  

CAD

250,700

  

USD

200,747

  

Morgan Stanley & Co.

 

06/15/2021

  

6,954

  

USD

23,944

  

CAD

28,900

  

Morgan Stanley & Co.

 

06/15/2021

  

1

  

EUR

735,700

  

USD

880,843

  

Morgan Stanley & Co.

 

06/15/2021

  

19,030

  

GBP

1,021,700

  

USD

1,428,669

  

Morgan Stanley & Co.

 

06/15/2021

  

22,878

  

USD

148,126

  

NOK

1,223,100

  

Morgan Stanley & Co.

 

06/15/2021

  

1,037

  
  

$

51,130

  
Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Depreciation
 

AUD

9,400

  

USD

7,298

  

Morgan Stanley & Co.

 

06/15/2021

 

$

(23

)

 

USD

2,306,923

  

CAD

2,832,000

  

Morgan Stanley & Co.

 

06/15/2021

  

(39,333

)

 

USD

11,869,591

  

EUR

9,861,900

  

Morgan Stanley & Co.

 

06/15/2021

  

(193,022

)

 

USD

1,427,178

  

GBP

1,021,700

  

Morgan Stanley & Co.

 

06/15/2021

  

(24,368

)

 

NOK

130,600

  

USD

15,804

  

Morgan Stanley & Co.

 

06/15/2021

  

(98

)

 

USD

1,298,789

  

NOK

10,885,000

  

Morgan Stanley & Co.

 

06/15/2021

  

(10,236

)

 
  

$

(267,080

)

 

The following is a summary of investments classified by country exposure:

Country

 

% of Net Assets(a)

 

United Kingdom

  

10.59

%

 

France

  

2.04

%

 

Germany

  

1.57

%

 

Canada

  

1.57

%

 

Netherlands

  

1.21

%

 

Norway

  

1.05

%

 

Italy

  

0.92

%

 

Finland

  

0.88

%

 

Austria

  

0.60

%

 

See Notes to Financial Statements.

Annual Report | May 31, 2021
37


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

Country

 

% of Net Assets(a)

 

Belgium

  

0.54

%

 

Romania

  

0.50

%

 

Republic of Korea

  

0.27

%

 

Australia

  

0.24

%

 

United States

  

78.93

%

 

Liabilities in Excess of Other Assets

  

(0.91

)%

 
   

100.00

%

 

(a)  These percentages represent long positions only and are not net of short positions.

Abbreviations:

ADR - American Depositary Receipt

AG - Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders.

ASA - Allmennaksjeselskap is the Norwegian term for public limited company.

AUD - Australian dollar

bps - Basis Points. 100 Basis Points is equal to 1 percentage point.

B.V. - Besloten Vennootschap is the Dutch term for private limited liability company.

CAD - Canadian dollar

CVR - Contingent Value Rights

EONIA - Euro OverNight Index Average

ETF - Exchange-Traded Fund

EUR - Euro

GBP - British pound

GBP LIBOR - London Interbank Offered Rate denominated in British Pounds

LLC - Limited Liability Company

Ltd. - Limited

NOK - Norwegian krone

Oyj - Osakeyhtio is the Finnish equivalent of a public limited company.

PIPE - Private investment in public equity

Plc - Public Limited Company

SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.

SE - SE Regulation. A European Company which can operate on a Europe-wide basis and be governed by Community law directly applicable in all Member States

SONIA - Sterling OverNight Index Average

S&P - Standard & Poor's

SpA - Societa per Azione

SPAC - Special Purpose Acquisition Company

USD - United States Dollar

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
38


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

The following table summarizes the Water Island Event-Driven Fund's investments and derivative financial instruments categorized in the fair value hierarchy as of May 31, 2021:

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 

Common Stocks

 

Aerospace & Defense

 

$

2,632,930

  

$

  

$

  

$

2,632,930

  

Auto Parts & Equipment

  

321,404

   

544,948

   

   

866,352

  

Banks

  

1,440,614

   

   

   

1,440,614

  

Biotechnology

  

6,942,122

   

   

   

6,942,122

  

Chemicals

  

8,338,584

   

   

   

8,338,584

  

Commercial Services

  

6,920,868

   

   

   

6,920,868

  

Construction Materials

  

2,477,178

   

   

   

2,477,178

  

Distribution/Wholesale

  

1,289,354

   

   

   

1,289,354

  

Electronics

  

7,222,563

   

   

   

7,222,563

  

Engineering & Construction

  

545,540

   

   

1,481,430

   

2,026,970

  

Entertainment

  

300,640

   

   

   

300,640

  

Forest Products & Paper

  

1,695,718

   

   

   

1,695,718

  

Healthcare - Products

  

3,500,482

   

   

   

3,500,482

  

Healthcare - Services

  

5,266,520

   

   

   

5,266,520

  

Insurance

  

5,627,592

   

   

   

5,627,592

  

Internet

  

5,087,542

   

   

   

5,087,542

  

Lodging

  

4,908,100

   

   

   

4,908,100

  

Machinery - Diversified

  

3,917,622

   

   

   

3,917,622

  

Office Furnishings

  

478,790

   

   

   

478,790

  

Oil & Gas

  

1,778,979

   

   

   

1,778,979

  

Pharmaceuticals

  

1,467,861

   

   

   

1,467,861

  

Real Estate

  

2,412,136

   

   

   

2,412,136

  

Real Estate Investment Trusts

  

5,290,796

   

   

   

5,290,796

  

Retail

  

2,660,122

   

   

871,337

   

3,531,459

  

Semiconductors

  

13,245,850

   

   

   

13,245,850

  

Software

  

19,319,446

   

   

3,702,887

   

23,022,333

  
Special Purpose Acquisition
Companies
  

413,024

   

   

   

413,024

  

Telecommunications

  

1,976,870

   

   

   

1,976,870

  

Transportation

  

5,024,243

   

   

   

5,024,243

  

Water

  

1,628,896

   

   

   

1,628,896

  

Rights

  

   

74,583

   

43,889

   

118,472

  

Corporate Bonds**

  

   

2,992,962

   

   

2,992,962

  

Convertible Corporate Bonds

 

Auto Manufacturers

  

   

336,940

   

   

336,940

  

Entertainment

  

   

490,022

   

   

490,022

  

Pharmaceuticals

  

   

1,444,300

   

   

1,444,300

  

Private Investments

  

   

   

1,081,737

   

1,081,737

  

Warrants

  

46,957

   

   

   

46,957

  

Private Investments

  

   

354,915

   

79,400

   

434,315

  

Purchased Options

  

162,055

   

   

   

162,055

  

TOTAL

 

$

124,341,398

  

$

6,238,670

  

$

7,260,680

  

$

137,840,748

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
39


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

Other Financial Instruments***

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 
Forward Foreign Currency
Exchange Contracts
 

$

  

$

51,130

  

$

  

$

51,130

  

Equity Swaps

  

0

   

   

   

0

  

Liabilities

 

Common Stocks**

  

(25,847,658

)

  

   

   

(25,847,658

)

 

Exchange-Traded Funds

  

(99,445

)

  

   

   

(99,445

)

 
Forward Foreign Currency
Exchange Contracts
  

   

(267,080

)

  

   

(267,080

)

 

TOTAL

 

$

(25,947,103

)

 

$

(215,950

)

 

$

  

$

(26,163,053

)

 

*  Refer to footnote 2 where leveling hierarchy is defined.

**  Refer to Portfolio of Investments for sector information.

***  Other financial instruments are instruments such as securities sold short, equity swaps and forward foreign currency exchange contracts.

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended May 31, 2021:

Investments
in Securities
 Balance as of
May 31, 2020
 Realized
Gain (Loss)
 Change in
Unrealized
Appreciation
(Depreciation)
 

Purchases

 Sales
Proceeds
 Transfers
into
Level 3
 Transfers
out of
Level 3
 Balance as of
May 31, 2021
 Net change in
Unrealized
Appreciation
(Depreciation)
from
investments
still held
as of
May 31,
2021
 
Common
Stocks
 

$

2,731,749

  

$

520,171

  

$

412,388

  

$

8,599,813

  

$

(6,208,467

)

 

$

  

$

  

$

6,055,654

  

$

429,920

  

Rights

  

   

   

3,858

   

40,031

   

   

   

   

43,889

   

3,858

  
Convertible
Corporate
Bonds
  

   

   

(118,263

)

  

1,200,000

   

   

   

   

1,081,737

   

(118,263

)

 
Private
Investments
  

   

   

(1,328

)

  

80,728

   

   

   

   

79,400

   

(1,328

)

 

Total

 

$

2,731,749

  

$

520,171

  

$

296,655

  

$

9,920,572

  

$

(6,208,467

)

 

$

  

$

  

$

7,260,680

  

$

314,187

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
40


Water Island Event-Driven Fund  Portfolio of Investments (continued)

May 31, 2021

The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of May 31, 2021:

Investments in
Securities
 Fair Value at
May 31, 2021
 Valuation
Technique
 Unobservable
Input
 Range of
Values
 Weighted
Average
 

Common Stocks

 

$

6,055,654

  Deal Value,
Liquidation
Value
 Final
Determination
on Dissent,
Liquidation
Value
 $20.14-$36.50
 
 
 
 
 $28.08
 
 
 
 
 

Rights

  

43,889

  Discounted,
probability
adjusted
value
 Discount
Rate,
Probability
 10%, 38.28%
 
 
 
 10%, 38.28%
 
 
 
 
Convertible
Corporate
Bonds
  

1,081,737

  Discounted
Cash Flow
 Spread

 800 Bps
 
 
 800 Bps
 
 
 
Private
Investments
  

79,400

  

Cost

 Cost
 $0.91-$1
 
 $0.97
 
 

See Notes to Financial Statements.

Annual Report | May 31, 2021
41


Water Island Credit Opportunities Fund  Manager Commentary

May 31, 2021 (Unaudited)

Water Island Credit Opportunities Fund | Tickers: ACFIX, ARCFX, AGCAX

The Fund's Goal and Main Investments

The Fund seeks to provide current income and capital growth by focusing on company-specific catalysts and events in order to generate returns that are more correlated to the outcomes and timelines of those events, rather than on overall market direction or changes in interest rates.

Investment Strategy

The Fund employs a fundamentally driven investment approach. The investment team screens catalyst-driven investments such as mergers, acquisitions, asset sales, spin-offs, refinancings, recapitalizations, corporate reorganizations, litigation, and regulatory changes. From this universe the team selects investments based on factors such as risk/reward profile, potential downside, and security liquidity. The team generates returns by holding outright long and short positions and by utilizing capital structure arbitrage, merger arbitrage, and convertible arbitrage techniques to exploit security mispricing or inefficiencies. This portfolio offers a pure-play credit implementation of Water Island Capital's broader event-driven style.

Fiscal Year Highlights

Water Island Credit Opportunities Fund Class I (ACFIX) returned 8.29% for the fiscal year ending May 31, 2021. The portfolio's returns were derived predominantly from the Americas, though investments in Europe and the Asia-Pacific region also contributed positively to performance. The Fund's top-performing sectors were energy and industrials. The only sector that detracted from returns over the period was utilities. The portfolio's broad market hedges also detracted slightly from returns.

The Fund's top contributor for the period was our position in QEP Resources, a natural gas and oil exploration company located in the Permian and Williston Basins. Since the inception of this trade, our focus had been on the front end of QEP's maturity curve and the company's efforts to de-lever its balance sheet through asset sales and operational changes. During Q1 2020, QEP bonds sold off along with the energy sector due to dramatic supply and demand imbalances. We added to our position at that time as we continued to believe that QEP had multiple ways to redeem its 2021 bonds. During Q3 2020, the company announced the redemption of its 2021 bonds following the accelerated receipt of tax refunds from the U.S. government. The redemption occurred in Q4 2020, leading to strong gains for the Fund.

The second-best performing event contributor was our position in Boeing, one of the world's most powerful aerospace and defense companies. Over the past year, the company has faced some of the most serious challenges in its history. Following the grounding of the 737 MAX due to software and avionics issues, combined with the significant impact of the COVID-19 pandemic on the company's airline customers, Boeing needed to raise short-term liquidity to cover its global obligations and manufacturing infrastructure. In April 2020, the company raised $25 billion through various debt tranches which were brought to market at historically wide spreads. We purchased some of this debt as a medium-term investment, and over the year our position appreciated as the company's 737 Max was re-certified by several important national aviation regulators, leading to gains for the Fund.

Conversely, the Fund's top detractor for the fiscal year was our position in Edgewell Personal Care, a manufacturer of consumer products under a broad range of brands including Schick, Edge, Banana Boat, Hawaiian Tropic, and Playtex. While we initially purchased Edgewell bonds as a short-term yield-to-call investment, defensive hedges led to small losses despite the company's bonds being called at a premium during Q3 2020.

www.arbitragefunds.com | 1-800-295-4485
42


Water Island Credit Opportunities Fund  Manager Commentary (continued)

May 31, 2021 (Unaudited)

The Fund's second-largest detractor was our position in Kaleyra, a provider of cloud communications platforms for building SMS, voice, and messaging applications. During February 2021, the company announced a transformative acquisition to expand its U.S. footprint by purchasing privately held Mgage LLC for approximately $220 million. As part of this transaction, we joined a group of investors to help fund this deal via a convertible bond offering. The investment was attractive not only from a valuation standpoint, but also due to the prospects for the pro-forma company and multiple potential catalysts related to the company being under-covered by the research community (which we believe will change over time). The loss during 2021 is related to marking the position at its bond floor during the period between our commitment to the financing and the issuance of the bonds. The bonds were issued shortly after the close of the fiscal year and, as of this writing, are trading above our cost basis.

Annual Report | May 31, 2021
43


Water Island Credit Opportunities Fund  Portfolio Information

May 31, 2021 (Unaudited)

Performance (annualized returns as of May 31, 2021)

 One
Year
 Five
Year
 Ten
Year
 Since
Inception*
 

Water Island Credit Opportunities Fund, Class R

  

8.09

%

  

3.76

%

  

N/A

   

3.00

%

 

Water Island Credit Opportunities Fund, Class I

  

8.29

%

  

4.02

%

  

N/A

   

3.24

%

 

Water Island Credit Opportunities Fund, Class A**

  

8.02

%

  

3.74

%

  

N/A

   

2.93

%

 

ICE BofA Merrill Lynch U.S. 3-Month Treasury Bill Index

  

0.11

%

  

1.18

%

  

N/A

   

0.72

%

 

Bloomberg Barclays Capital U.S. Aggregate Bond Index

  

-0.40

%

  

3.25

%

  

N/A

   

2.80

%

 

Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from the amount reported in the Financial Highlights. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com.

* Class R and Class I inception: 10/1/12; Class A inception: 6/1/13. The "Since Inception" returns for securities indices are for the inception date of Class R and Class I shares.

** Class A shares are subject to a maximum front-end sales load of 3.25% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $250,000 purchased without a front-end sales charge and redeemed within 18 months of purchase.

The Total Annual Fund Operating Expenses for Class R, Class I and Class A are 1.97%, 1.72% and 1.97%, respectively. The Adviser has agreed to waive fees (not including the effects of interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, taxes, or other extraordinary expenses) in excess of 1.23%, 0.98% and 1.23% for Class R, Class I and Class A, respectively, until at least September 30, 2022. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.

The ICE Bank of America (BofA) Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.

The Bloomberg Barclays Capital U.S. Aggregate Bond Index is a market value-weighted index of investment grade fixed-rated debt issues, including government, corporate, asset-backed and mortgage-backed securities with a maturity of one year or more.

An investor may not invest directly in an index.

www.arbitragefunds.com | 1-800-295-4485
44


Water Island Credit Opportunities Fund  Portfolio Information (continued)

May 31, 2021 (Unaudited)

Growth of $10,000 Investment

The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

  

Sector Weighting

The following chart shows the sector weightings of the Water Island Credit Opportunities Fund investments (including short sales and excluding derivatives) as of the report date.

Annual Report | May 31, 2021
45


Water Island Credit Opportunities Fund  Portfolio of Investments

May 31, 2021

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

BANK LOAN - 1.85%

 

Chemicals - 1.85%

 
Zep Inc., 2017 1st Lien
Term Loan, Variable Rate,
(3 mo. USD LIBOR
plus 4.00%)
 

08/12/2024

  

5.000

%

 

$

1,994,832

  

$

1,971,393

  
TOTAL BANK LOANS
(Cost $1,985,212)
  

1,971,393

  

CORPORATE BONDS - 80.13%

 

Aerospace & Defense - 3.10%

 

Boeing Co. (The)(a)

 

05/01/2050

  

5.805

%

  

1,250,000

   

1,607,680

  

Triumph Group, Inc.

 

06/01/2022

  

5.250

%

  

1,687,000

   

1,688,687

  
   

3,296,367

  

Auto Manufacturers - 4.68%

 

Navistar International Corp.(b)

 
  

05/01/2025

  

9.500

%

  

750,000

   

810,825

  
  

11/01/2025

  

6.625

%

  

4,032,000

   

4,169,491

  
   

4,980,316

  

Banks - 0.97%

 

CIT Group, Inc.

 

08/01/2023

  

5.000

%

  

50,000

   

54,312

  
Truist Bank, Variable Rate,
(3 mo. USD LIBOR
plus 0.65%)(a)
 

03/15/2028

  

0.834

%

  

1,000,000

   

973,952

  
   

1,028,264

  

Commercial Services - 4.76%

 

APX Group, Inc.(a)

 

12/01/2022

  

7.875

%

  

1,390,000

   

1,396,992

  
Jaguar Holding Co. II /
PPD Development LP(b)
 

06/15/2028

  

5.000

%

  

2,500,000

   

2,700,000

  

Laureate Education, Inc.(b)

 

05/01/2025

  

8.250

%

  

935,000

   

973,522

  
   

5,070,514

  

Computers & Computer Services - 3.47%

 
Dell International LLC /
EMC Corp.(a)(b)
 

06/15/2024

  

7.125

%

  

2,500,000

   

2,550,000

  
Dell International LLC /
EMC Corp.(b)
 

10/01/2026

  

4.900

%

  

1,000,000

   

1,148,044

  
   

3,698,044

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
46


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS - 80.13% (Continued)

 

Construction Materials - 2.71%

 
Forterra Finance LLC /
FRTA Finance Corp.(b)
 

07/15/2025

  

6.500

%

 

$

1,663,000

  

$

1,791,882

  

Norbord, Inc.(a)(b)

 

04/15/2023

  

6.250

%

  

1,000,000

   

1,090,200

  
   

2,882,082

  

Diversified Financial Services - 2.92%

 

Solera LLC / Solera Finance, Inc.(b)

 

03/01/2024

  

10.500

%

  

3,025,000

   

3,106,675

  

Electronics - 2.69%

 

Ingram Micro, Inc.(a)

 

12/15/2024

  

5.450

%

  

2,500,000

   

2,861,966

  

Entertainment - 4.21%

 
Scientific Games
International, Inc.(a)(b)
 

10/15/2025

  

5.000

%

  

1,500,000

   

1,545,000

  
Stars Group Holdings B.V. /
Stars Group US
Co-Borrower LLC(a)(b)
 

07/15/2026

  

7.000

%

  

2,820,000

   

2,933,533

  
   

4,478,533

  

Food - 4.96%

 

B&G Foods, Inc.

 

04/01/2025

  

5.250

%

  

1,500,000

   

1,541,250

  
Chobani LLC /
Chobani Finance
Corp., Inc.(a)(b)
 

04/15/2025

  

7.500

%

  

2,122,000

   

2,207,983

  

Dole Food Co., Inc.(b)

 

06/15/2025

  

7.250

%

  

1,500,000

   

1,530,000

  
   

5,279,233

  

Hand/Machine Tools - 2.95%

 
Werner FinCo LP /
Werner FinCo, Inc.(b)
 

07/15/2025

  

8.750

%

  

3,000,000

   

3,142,500

  

Iron/Steel - 1.16%

 

Cleveland-Cliffs, Inc.

 

03/01/2025

  

5.750

%

  

1,200,000

   

1,237,800

  

Lodging - 0.14%

 
Diamond Resorts
International, Inc.(a)(b)
 

09/01/2023

  

7.750

%

  

143,000

   

148,363

  

Machinery - Diversified - 3.66%

 
RBS Global, Inc. /
Rexnord LLC(a)(b)
 

12/15/2025

  

4.875

%

  

1,240,000

   

1,269,450

  

Welbilt, Inc.(a)

 

02/15/2024

  

9.500

%

  

2,500,000

   

2,625,000

  
   

3,894,450

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
47


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS - 80.13% (Continued)

 

Media - 1.91%

 

Meredith Corp.(c)

 

02/01/2026

  

6.875

%

 

$

1,500,000

  

$

1,566,705

  

Walt Disney Co. (The)(a)

 

09/01/2049

  

2.750

%

  

500,000

   

464,502

  
   

2,031,207

  

Metal Fabricate & Hardware - 3.38%

 

Hillman Group, Inc. (The)(b)

 

07/15/2022

  

6.375

%

  

3,592,000

   

3,594,514

  

Oil & Gas - 3.43%

 

Chevron USA, Inc.

 

11/15/2043

  

5.250

%

  

520,000

   

688,688

  
Par Petroleum LLC / Par Petroleum
Finance Corp.(a)(b)
 

12/15/2025

  

7.750

%

  

2,300,000

   

2,316,560

  

WPX Energy, Inc.

 
  

10/15/2027

  

5.250

%

  

85,000

   

90,967

  
  

06/15/2028

  

5.875

%

  

504,000

   

554,904

  
   

3,651,119

  

Pipelines - 1.88%

 

Enable Midstream Partners LP(a)

 

05/15/2024

  

3.900

%

  

1,250,000

   

1,337,513

  

Enable Midstream Partners LP

 

05/15/2028

  

4.950

%

  

125,000

   

141,489

  
Midwest Connector
Capital Co. LLC(a)(b)
 

04/01/2024

  

3.900

%

  

500,000

   

521,429

  
   

2,000,431

  

Real Estate Investment Trusts - 3.24%

 

ESH Hospitality, Inc.(b)

 
  

05/01/2025

  

5.250

%

  

2,100,000

   

2,139,375

  
  

10/01/2027

  

4.625

%

  

1,240,000

   

1,311,300

  
   

3,450,675

  

Retail - 2.51%

 

Golden Nugget, Inc.(b)

 

10/15/2024

  

6.750

%

  

2,645,000

   

2,669,546

  

Semiconductors - 0.23%

 

Microchip Technology, Inc.

 

06/01/2021

  

3.922

%

  

250,000

   

250,000

  

Software - 7.98%

 
BY Crown Parent LLC / BY Bond
Finance, Inc.(a)(b)
 

01/31/2026

  

4.250

%

  

4,066,000

   

4,248,401

  
Change Healthcare
Holdings LLC / Change
Healthcare Finance, Inc.(a)(b)
 

03/01/2025

  

5.750

%

  

2,000,000

   

2,033,000

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
48


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS - 80.13% (Continued)

 

Software - 7.98% (Continued)

 
Dun & Bradstreet
Corp. (The)(a)(b)(c)
 

02/15/2027

  

10.250

%

 

$

2,000,000

  

$

2,207,500

  
   

8,488,901

  

Telecommunications - 11.50%

 

Altice France SA(b)

 

05/01/2026

  

7.375

%

  

6,500,000

   

6,759,480

  

Cincinnati Bell, Inc.(b)

 
  

07/15/2024

  

7.000

%

  

2,300,000

   

2,369,000

  
  

10/15/2025

  

8.000

%

  

2,000,000

   

2,115,000

  

Hughes Satellite Systems Corp.

 

06/15/2021

  

7.625

%

  

1,000,000

   

1,002,200

  
   

12,245,680

  

Transportation - 1.69%

 

GasLog Ltd.

 

03/22/2022

  

8.875

%

  

1,748,000

   

1,798,255

  
TOTAL CORPORATE BONDS
(Cost $84,327,144)
  

85,285,435

  

CONVERTIBLE CORPORATE BONDS - 14.71%

 

Auto Manufacturers - 0.49%

 

Lightning eMotors, Inc.(b)

 

05/15/2024

  

7.500

%

  

620,000

   

518,370

  

Computers & Computer Services - 1.47%

 

Pure Storage, Inc.(a)

 

04/15/2023

  

0.125

%

  

1,500,000

   

1,564,687

  

Entertainment - 0.67%

 

Cineplex, Inc.(b)

 

09/30/2025

  

5.750

%

  

567,000

   

708,782

  

Internet - 1.76%

 

Twitter, Inc.

 

06/15/2024

  

0.250

%

  

1,500,000

   

1,877,850

  

Pharmaceuticals - 4.58%

 

Dermira, Inc.

 

05/15/2022

  

3.000

%

  

1,938,000

   

1,957,380

  

Jazz Investments I Ltd.

 

08/15/2021

  

1.875

%

  

1,500,000

   

1,520,625

  

Paratek Pharmaceuticals, Inc.(a)

 

05/01/2024

  

4.750

%

  

1,500,000

   

1,401,562

  
   

4,879,567

  

Private Investments(d)(e) - 1.57%

 

GigCapital2 PIPE

 

06/15/2026

  

6.250

%

  

951,000

   

864,640

  

Kaleyra PIPE

 

06/01/2026

  

6.125

%

  

900,000

   

803,952

  
   

1,668,592

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
49


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CONVERTIBLE CORPORATE BONDS - 14.71% (Continued)

 

Software - 4.17%

 

Nuance Communications, Inc.(a)

 

12/15/2035

  

1.000

%

 

$

1,000,000

  

$

2,185,000

  

Slack Technologies, Inc.

 

04/15/2025

  

0.500

%

  

1,500,000

   

2,250,000

  
   

4,435,000

  
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $13,809,090)
  

15,652,848

  

 

  

Shares

 

Value

 

WARRANTS - 0.07%

 

Auto Manufacturers - 0.07%

 
Lightning eMotors, Inc., Exercise
Price $11.50, Expires 07/02/2025(f)
  

53,913

  

$

72,243

  
TOTAL WARRANTS
(Cost $0)
    

72,243

  

PREFERRED STOCKS - 0.00%(g)

 

Insurance - 0.00%(g)

 
National General Holdings Corp.,
Series C, 7.500%
  

10

   

254

  
TOTAL PREFERRED STOCKS
(Cost $256)
    

254

  

 

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(f) - 0.15%

 

Call Options Purchased - 0.15%

 
Dun & Bradstreet Holdings,
Inc.
 

07/2021

 

$

25.00

  

$

244,758

   

114

  

$

2,280

  

Meredith Corp.

 

09/2021

  

35.00

   

252,600

   

75

   

20,063

  

Par Pacific Holdings, Inc.

 
  

06/2021

  

17.50

   

487,200

   

350

   

2,625

  
  

07/2021

  

15.00

   

139,200

   

100

   

7,000

  

Scientific Games Corp.

 

07/2021

  

75.00

   

1,632,150

   

225

   

118,125

  

SPDR S&P 500 ETF Trust

 

06/2021

  

430.00

   

4,200,400

   

100

   

7,950

  
TOTAL CALL OPTIONS PURCHASED
(Cost $237,281)
          

158,043

  
TOTAL PURCHASED OPTIONS
(Cost $237,281)
          

158,043

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
50


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

  

Yield

 

Shares

 

Value

 

SHORT-TERM INVESTMENTS - 2.09%

 

Money Market Funds

 
Morgan Stanley Institutional Liquidity Fund
Government Portfolio, Institutional Class
  

0.026

%(h)

  

1,114,360

  

$

1,114,360

  
State Street Institutional U.S. Government
Money Market Fund, Premier Class
  

0.051

%(h)

  

1,114,360

   

1,114,360

  
   

2,228,720

  
TOTAL SHORT-TERM INVESTMENTS
(Cost $2,228,720)
  

2,228,720

  
Total Investments - 99.00%
(Cost $102,587,703)
  

105,368,936

  

Other Assets in Excess of Liabilities - 1.00%(i)

  

1,059,056

  

NET ASSETS - 100.00%

 

$

106,427,992

  

Portfolio Footnotes

(a)  Security, or a portion of security, is being held as collateral for short sales, written option contracts or forward foreign currency exchange contracts. At May 31, 2021, the aggregate fair market value of those securities was $31,642,288, representing 29.73% of net assets.

(b)  Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of May 31, 2021, these securities had a total value of $64,629,725 or 60.73% of net assets.

(c)  Underlying security for a written/purchased call/put option.

(d)  Represents a holding that is a direct investment into a private company and is not a listed or publicly traded entity.

(e)  Security fair valued using significant unobservable inputs and classified as a Level 3 security. As of May 31, 2021, the total fair market value of these securities was $1,668,592, representing 1.57% of net assets.

(f)  Non-income-producing security.

(g)  Less than 0.005% of net assets.

(h)  Rate shown is the 7-day effective yield as of May 31, 2021.

(i)  Includes cash held as collateral for short sales and written option contracts.

See Notes to Financial Statements.

Annual Report | May 31, 2021
51


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (7.10%)

 

Auto Manufacturers - (0.21%)

 

Navistar International Corp.

  

(5,000

)

 

$

(221,150

)

 

Commercial Services - (0.01%)

 

Dun & Bradstreet Holdings, Inc.

  

(300

)

  

(6,441

)

 

Computers & Computer Services - (0.40%)

 

Pure Storage, Inc., Class A

  

(22,300

)

  

(424,815

)

 

Entertainment - (0.92%)

 

Cineplex, Inc.

  

(33,300

)

  

(432,772

)

 

Scientific Games Corp., Class A

  

(7,600

)

  

(551,304

)

 
   

(984,076

)

 

Internet - (0.83%)

 

Twitter, Inc.

  

(15,300

)

  

(887,400

)

 

Media - (0.14%)

 

Meredith Corp.

  

(4,500

)

  

(151,560

)

 

Metal Fabricate & Hardware - (0.08%)

 

Rexnord Corp.

  

(1,800

)

  

(89,946

)

 

Oil & Gas - (0.07%)

 

Par Pacific Holdings, Inc.

  

(5,160

)

  

(71,827

)

 

Pharmaceuticals - (0.49%)

 

Jazz Pharmaceuticals Plc

  

(1,900

)

  

(338,447

)

 

Paratek Pharmaceuticals, Inc.

  

(22,500

)

  

(184,950

)

 
   

(523,397

)

 

Software - (3.18%)

 

Nuance Communications, Inc.

  

(37,700

)

  

(1,994,330

)

 

Slack Technologies, Inc., Class A

  

(31,500

)

  

(1,387,260

)

 
   

(3,381,590

)

 

Telecommunications - (0.63%)

 

Cincinnati Bell, Inc.

  

(43,400

)

  

(668,360

)

 

Transportation - (0.14%)

 

GasLog Ltd.

  

(25,000

)

  

(145,000

)

 
TOTAL COMMON STOCKS
(Proceeds $5,952,965)
  

(7,555,562

)

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
52


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

U.S. TREASURY & GOVERNMENT AGENCIES - (3.42%)

 

Sovereign - (3.42%)

 

U.S. Treasury Bond

 

11/15/2049

  

2.375

%

 

$

(268,000

)

 

$

(272,585

)

 

U.S. Treasury Bond

 

02/15/2050

  

2.000

%

  

(1,240,000

)

  

(1,161,095

)

 

U.S. Treasury Note

 

04/30/2026

  

0.750

%

  

(1,100,000

)

  

(1,097,938

)

 

U.S. Treasury Note

 

02/28/2025

  

1.125

%

  

(1,080,000

)

  

(1,104,764

)

 
   

(3,636,382

)

 
TOTAL U.S. TREASURY & GOVERNMENT AGENCIES
(Proceeds $3,970,845)
  

(3,636,382

)

 
TOTAL SECURITIES SOLD SHORT
(Proceeds $9,923,810)
 

$

(11,191,944

)

 

 

WRITTEN OPTIONS

 Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

Written Put Options

 

Meredith Corp.

 

07/2021

 

$

35.00

  

$

(67,360

)

  

(20

)

 

$

(5,300

)

 
TOTAL WRITTEN PUT OPTIONS
(Premiums received $4,977)
  

(5,300

)

 
TOTAL WRITTEN OPTIONS
(Premiums received $4,977)
 

$

(5,300

)

 

EQUITY SWAP CONTRACTS

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 SPDR
Bloomberg
Barclays
High Yield
Bond ETF
 
 
 Received
1 Month-
Federal
Rate
Minus
251 bps
(-2.450%)
 

08/19/2021

 

$

  

$

  

$

  

USD

1,513,849

  

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 iShares
iBoxx $
Investment
Grade
Corporate
Bond ETF
 
 Received
1 Month-
Federal
Rate
Minus
206 bps
(-2.000%)
 

08/19/2021

  

   

   

  

USD

1,132,706

   

  
            

$

    

$

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
53


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Appreciation
 

CAD

333,000

  

USD

268,197

  

Morgan Stanley & Co.

 

06/15/2021

 

$

7,686

  

USD

9,197

  

CAD

11,100

  

Morgan Stanley & Co.

 

06/15/2021

  

1

  
  

$

7,687

  
Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Depreciation
 

USD

531,656

  

CAD

665,100

  

Morgan Stanley & Co.

 

06/15/2021

 

$

(19,366

)

 

The following is a summary of investments classified by country exposure:

Country

 

% of Net Assets(a)

 

France

  

6.35

%

 

Netherlands

  

2.76

%

 

Canada

  

1.69

%

 

Greece

  

1.69

%

 

Ireland

  

1.43

%

 

United States

  

85.08

%

 

Other Assets in Excess of Liabilities

  

1.00

%

 
   

100.00

%

 

(a)  These percentages represent long positions only and are not net of short positions.

Abbreviations:

bps - Basis Points. 100 Basis Points is equal to 1 percentage point.

B.V. - Besloten Vennootschap is the Dutch term for private limited liability company.

CAD - Canadian dollar

ETF - Exchange-Traded Fund

LIBOR - London Interbank Offered Rate

LLC - Limited Liability Company

LP - Limited Partnership

Ltd. - Limited

PIPE - Private investment in public equity

Plc - Public Limited Company

SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.

S&P - Standard & Poor's

SPDR - Standard & Poor's Depositary Receipt

USD - United States Dollar

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
54


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

The following table summarizes the Water Island Credit Opportunities Fund's investments and derivative financial instruments categorized in the fair value hierarchy as of May 31, 2021:

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 

Bank Loans

 

$

  

$

1,971,393

  

$

  

$

1,971,393

  

Corporate Bonds**

  

   

85,285,435

   

   

85,285,435

  

Convertible Corporate Bonds

 

Auto Manufacturers

  

   

518,370

   

   

518,370

  

Computers & Computer Services

  

   

1,564,687

   

   

1,564,687

  

Entertainment

  

   

708,782

   

   

708,782

  

Internet

  

   

1,877,850

   

   

1,877,850

  

Pharmaceuticals

  

   

4,879,567

   

   

4,879,567

  

Private Investments

  

   

   

1,668,592

   

1,668,592

  

Software

  

   

4,435,000

   

   

4,435,000

  

Warrants

  

72,243

   

   

   

72,243

  

Preferred Stocks**

  

254

   

   

   

254

  

Purchased Options

  

158,043

   

   

   

158,043

  

Short-Term Investments

  

2,228,720

   

   

   

2,228,720

  

TOTAL

 

$

2,459,260

  

$

101,241,084

  

$

1,668,592

  

$

105,368,936

  

Other Financial Instruments***

 

Assets

 
Forward Foreign Currency Exchange
Contracts
 

$

  

$

7,687

  

$

  

$

7,687

  

Equity Swaps

  

0

   

   

   

0

  

Liabilities

 

Common Stocks**

  

(7,555,562

)

  

   

   

(7,555,562

)

 

U.S. Treasury & Government Agencies

  

   

(3,636,382

)

  

   

(3,636,382

)

 

Written Options

  

(5,300

)

  

   

   

(5,300

)

 
Forward Foreign Currency Exchange
Contracts
  

   

(19,366

)

  

   

(19,366

)

 

TOTAL

 

$

(7,560,862

)

 

$

(3,648,061

)

 

$

  

$

(11,208,923

)

 

*  Refer to footnote 2 where leveling hierarchy is defined.

**  Refer to Portfolio of Investments for sector information.

***  Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.

See Notes to Financial Statements.

Annual Report | May 31, 2021
55


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

May 31, 2021

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended May 31, 2021:

Investments
in Securities
 Balance
as of
May 31,
2020
 Accrued
Discounts/
(Premiums)
 Realized
Gain/
(Loss)
 Change in
Unrealized
(Depreciation)
 

Purchases

 Sales
Proceeds
 Amortization
Premium/
Discount
 Transfers
into
Level 3
 Transfers
out of
Level 3
 Balance
as of
May 31, 2021
 Net change in
Unrealized
Appreciation
(Depreciation)
from
investments
still held
as of
May 31, 2021
 
Convertible
Corporate
Bonds
 

$

0

  

$

  

$

  

$

(182,408

)

 

$

1,851,000

  

$

  

$

  

$

  

$

  

$

1,668,592

  

$

(182,408

)

 

Total

 

$

0

  

$

  

$

  

$

(182,408

)

 

$

1,851,000

  

$

  

$

  

$

  

$

  

$

1,668,592

  

$

(182,408

)

 

The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of May 31, 2021:

Investments in
Securities
 Fair Value at
May 31, 2021
 Valuation
Technique
 Unobservable
Input
 Range of
Values
 Weighted
Average
 
Convertible
Corporate Bonds
 

$

1,668,592

 Discounted
Cash Flow
 

Spread

 800 Bps 800 Bps 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
56


Water Island Long/Short Fund  Manager Commentary

May 31, 2021 (Unaudited)

Water Island Long/Short Fund | Tickers: ATQIX

The Fund's Goal and Main Investments

The Fund seeks to achieve capital appreciation over a full market cycle with lower volatility than the broad equity market.

Investment Strategy

The Fund is a long/short event-driven portfolio that seeks to profit from long and/or short investments in equity and debt securities of companies where publicly announced or anticipated corporate events may drive the security prices higher or lower. Corporate events may take the form of "hard" catalysts – which tend to be characterized by more definitive outcomes, shorter timelines, and lower levels of volatility – or "soft" catalysts – which tend to be characterized by less certain outcomes, longer timelines, and greater levels of risk (though also commensurate greater potential reward). Examples of hard catalysts include, but are not limited to, definitive, publicly announced mergers and acquisitions, Dutch tenders, yield-to-call opportunities, and spin-offs (pre-completion). Examples of soft catalysts include, but are not limited to, a broad range of events spurred by company specific, industry-wide, or broad economic conditions such as speculated M&A, asset sales, spin-offs (post-completion), activist campaigns, corporate levering/de-levering, credit refinancings, recapitalizations, restructurings, and other corporate reorganizations and re-rating opportunities. The investment team seeks to identify these event-driven investment opportunities and purchase or sell short such securities when the team believes the market is under- or over-appreciating the potential value creation opportunity from such event or catalyst.

Fiscal Year Highlights

Water Island Long/Short Fund Class I (ATQIX) returned 40.98% for the fiscal year ending May 31, 2021. The portfolio's returns were derived predominantly from the Americas, though investments in Europe and the Asia-Pacific region also contributed positively to performance. Financials and industrials were the top contributors on a sector basis. There were no negative performers on a sector basis, however, the portfolio's broad market hedges did detract from returns.

The Fund's top performing position for the period was our investment in Danimer Scientific. Danimer is a leading designer and manufacturer of innovative biodegradable plastics. In October 2020, the company was targeted by a special purpose acquisition company (SPAC) called Live Oak Acquisition Corp, which had gone public earlier in the year. Upon the announcement of the transaction, Live Oak sought to raise additional capital to help fund the deal through private investments in public equity (PIPE). We invested in the PIPEs and profited after the deal completed and Danimer was successfully brought public in December. In early Q1 2021, investors continued to drive the company's shares higher due to a favorable outlook for its unique technology in a world that is increasingly concerned with environmental factors and ESG (environment, social, governance) investing. The rally led to further gains for the Fund, and later in the quarter we opted to exit our Danimer position in order to lock in our gains and redeploy capital elsewhere.

The second highest contributor was our investment in Graf Industrial. Graf Industrial was a SPAC in which the fund initiated a position in early Q2 2020, after the company disclosed in a regulatory filing that it was negotiating a deal to merge with PureCycle Technologies. With the SPAC trading at the implied value of its cash holdings, we saw the opportunity to own a company that we believed had limited downside, but significant potential upside should it be able to successfully structure a deal. In late June, press reporting indicated that Graf was no longer pursuing a transaction with PureCycle, but was in advanced negotiations to merge with Velodyne Lidar, a leader in developing light detection and ranging technology used for autonomous driving and

Annual Report | May 31, 2021
57


Water Island Long/Short Fund  Manager Commentary (continued)

May 31, 2021 (Unaudited)

last mile delivery. In July 2020, Graf formally announced its transaction with Velodyne. We subsequently monetized our position in Graf at a profit.

Conversely, the top detractor in the portfolio for the period was our position in broad equity market hedges. From time to time, in addition to various issuer-specific hedges, we may choose to implement broader market hedges in the portfolio. The intent of these hedges is to reduce directional exposure and market risk while providing the portfolio with lower volatility and drawdowns. While these hedges detracted from returns as equity markets generated impressive gains over the period, they nonetheless served their intended purposes.

The Fund's second-worst performer for the fiscal year was our position in Act II Global Acquisition Corp. Act II was a SPAC in which we initiated a position in June 2020, just prior to the company completing is merger with MAFCO and Merisant, two private companies in the business of providing licorice and sweetener products. The new company, named Whole Earth Brands, is a high cash flow generating asset with a worldwide distribution footprint. Upon the completion of the merger, technical dynamics driven by arbitrageurs looking to liquidate their positions drove the share price lower, leading to losses for the Fund. While our position in Act II was a detractor, we maintained our exposure to Whole Earth Brands after the merger as we saw significant upside in the company's long-term strategy to leverage its cash flow generation and distribution platform to roll-up other health and wellness consumer products. Whole Earth was a contributor during the period, and overall our combined Act II/Whole Earth position generated positive returns for the fund.

High, double-digit returns were primarily achieved during favorable market conditions. Such returns are atypical and may not be repeatable.

www.arbitragefunds.com | 1-800-295-4485
58


Water Island Long/Short Fund  Portfolio Information

May 31, 2021 (Unaudited)

Performance (annualized returns as of May 31, 2021)

 One
Year
 Five
Year
 Ten
Year
 Since
Inception*
 

Water Island Long/Short Fund Class I

  

40.98

%

  

10.51

%

  

N/A

   

7.06

%

 
ICE BofA Merrill Lynch U.S. 3-Month
Treasury Bill Index
  

0.11

%

  

1.18

%

  

N/A

   

0.95

%

 

S&P 500® Index

  

40.32

%

  

17.16

%

  

N/A

   

13.82

%

 

Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from the amount reported in the Financial Highlights. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com.

* Class I inception: 12/31/14. The "Since Inception" returns for securities indices are for the inception date of Class I shares.

The Total Annual Fund Operating Expenses for Class I is 12.58%. The Adviser has agreed to waive fees (not including the effects of interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, taxes, or other extraordinary expenses) in excess of 1.44% for Class I, until at least September 30, 2022. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.

The ICE Bank of America (BofA) Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.

The S&P 500® Index is an unmanaged index consisting of 500 stocks.

An investor may not invest directly in an index.

Annual Report | May 31, 2021
59


Water Island Long/Short Fund  Portfolio Information (continued)

May 31, 2021 (Unaudited)

Growth of $10,000 Investment

The chart represents historical performance of a hypothetical investment of $10,000 in the Class I shares of the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

  

Sector Weighting

The following chart shows the sector weightings of the Water Island Long/Short Fund's investments (including short sales and excluding derivatives) as of the report date.

www.arbitragefunds.com | 1-800-295-4485
60


Water Island Long/Short Fund  Portfolio of Investments

May 31, 2021

  

Shares

 

Value

 

COMMON STOCKS - 99.92%

 

Aerospace & Defense - 2.54%

 

Aerojet Rocketdyne Holdings, Inc.(a)

  

1,935

  

$

93,751

  

Teledyne Technologies, Inc.(b)

  

1

   

333

  
   

94,084

  

Banks - 5.09%

 

CIT Group, Inc.

  

1,445

   

76,556

  

TCF Financial Corp.

  

2,350

   

111,625

  
   

188,181

  

Biotechnology - 4.87%

 

Alexion Pharmaceuticals, Inc.(b)

  

1,020

   

180,081

  

Chemicals - 4.68%

 

Ferro Corp.(a)(b)

  

2,669

   

57,651

  

W R Grace & Co.(a)

  

1,685

   

115,456

  
   

173,107

  

Commercial Services - 4.60%

 

IHS Markit Ltd.(a)

  

1,615

   

170,076

  

Distribution/Wholesale - 1.04%

 

Core-Mark Holding Co., Inc.(a)

  

835

   

38,293

  

Electronics - 3.81%

 

Coherent, Inc.(a)(b)

  

537

   

141,022

  

Entertainment - 0.97%

 

Cineplex, Inc.(b)

  

2,750

   

35,739

  

Forest Products & Paper - 1.47%

 

Domtar Corp.(a)(b)

  

1,000

   

54,230

  

Healthcare - Products - 5.88%

 

Cantel Medical Corp.(b)

  

1,507

   

122,564

  

Luminex Corp.(a)

  

1,550

   

57,179

  

Soliton, Inc.(a)(b)

  

1,695

   

37,765

  
   

217,508

  

Healthcare - Services - 5.22%

 

Magellan Health, Inc.(a)(b)

  

800

   

75,352

  

PPD, Inc.(a)(b)

  

2,552

   

117,698

  
   

193,050

  

Holding Companies-Diversified - 0.88%

 

VPC Impact Acquisition Holdings, Class A(a)(b)

  

3,200

   

32,640

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
61


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 
COMMON STOCKS - 99.92% (Continued) 

Insurance - 8.56%

 

Hartford Financial Services Group, Inc. (The)(a)

  

1,095

  

$

71,558

  

Watford Holdings Ltd.(b)

  

2,155

   

75,296

  

Willis Towers Watson Plc(a)

  

650

   

169,884

  
   

316,738

  

Internet - 5.85%

 

Boingo Wireless, Inc.(b)

  

5,976

   

83,545

  

Leaf Group Ltd.(a)(b)

  

4,350

   

36,714

  

Proofpoint, Inc.(a)(b)

  

557

   

96,255

  
   

216,514

  

Lodging - 4.97%

 

Extended Stay America, Inc.(a)

  

9,319

   

183,677

  

Machinery - Diversified - 2.38%

 

Welbilt, Inc.(a)(b)

  

3,565

   

88,091

  

Media - 3.11%

 

Discovery, Inc., Class A(a)(b)

  

2,200

   

70,642

  

ViacomCBS, Inc., Class B(a)

  

1,050

   

44,541

  
   

115,183

  

Office Furnishings - 1.05%

 

Knoll, Inc.

  

1,500

   

39,000

  

Oil & Gas - 1.31%

 

Cimarex Energy Co.(a)

  

713

   

48,306

  

Real Estate Investment Trusts - 3.04%

 

Monmouth Real Estate Investment Corp.(a)

  

2,886

   

54,372

  

VEREIT, Inc.(a)

  

1,225

   

58,273

  
   

112,645

  

Retail - 1.98%

��

At Home Group, Inc.(a)(b)

  

1,953

   

73,316

  

Semiconductors - 7.34%

 

Maxim Integrated Products, Inc.(a)

  

799

   

81,506

  

Photon Control, Inc.(b)

  

12,603

   

37,453

  

Xilinx, Inc.(a)

  

1,200

   

152,400

  
   

271,359

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
62


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 
COMMON STOCKS - 99.92% (Continued) 

Software - 12.46%

 

Change Healthcare, Inc.(b)

  

3,325

  

$

77,938

  

Nuance Communications, Inc.(a)(b)

  

2,409

   

127,436

  

Slack Technologies, Inc., Class A(a)(b)

  

3,640

   

160,306

  

Talend SA, ADR(a)(b)

  

1,469

   

95,441

  
   

461,121

  

Special Purpose Acquisition Companies - 0.73%

 

Bull Horn Holdings Corp.(a)(b)

  

2,645

   

27,111

  

Telecommunications - 1.24%

 

ORBCOMM, Inc.(a)(b)

  

4,100

   

45,879

  

Transportation - 4.85%

 

Kansas City Southern(a)

  

603

   

179,501

  
TOTAL COMMON STOCKS
(Cost $3,585,885)
  

3,696,452

  

 

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CONVERTIBLE CORPORATE BONDS - 5.12%

 

Auto Manufacturers - 0.88%

 

Lightning eMotors, Inc.(c)

 

05/15/2024

  

7.500

%

 

$

39,000

  

$

32,607

  

Private Investments(d)(e) - 4.24%

 

GigCapital2 PIPE

 

06/15/2026

  

6.250

%

  

87,000

   

79,100

  

 

Kaleyra PIPE

 

06/01/2026

  

6.125

%

  

87,000

   

77,715

  
         

156,815

  
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $213,000)
  

189,422

  

 

  

Shares

 

Value

 

WARRANTS(b) - 0.13%

 

Auto Manufacturers - 0.13%

 
Lightning eMotors, Inc., Exercise
Price $11.50, Expires 07/02/2025
  

3,391

  

$

4,544

  
TOTAL WARRANTS
(Cost $0)
  

4,544

  

See Notes to Financial Statements.

Annual Report | May 31, 2021
63


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

  

Shares

 

Value

 

PRIVATE INVESTMENTS(b) - 1.45%

 

Fast Capital LLC(d)(e)

  

400

  

$

400

  

Fuse LLC(d)(e)

  

1,100

   

1,000

  

Fuse Sponsor Capital, Z2 Shares(d)(e)

  

110

   

100

  

GigCapital2 PIPE Equity

  

1,176

   

11,854

  

Kaleyra PIPE Equity

  

3,315

   

40,277

  
TOTAL PRIVATE INVESTMENTS
(Cost $54,722)
  

53,631

  

 

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(b) - 0.06%

 

Call Options Purchased - 0.06%

 

Advanced Micro Devices, Inc.

 

06/2021

 

$

90.00

  

$

32,032

   

4

  

$

104

  

II-VI, Inc.

 

06/2021

  

65.00

   

33,685

   

5

   

1,975

  

Middleby Corp. (The)

           
  

06/2021

  

180.00

   

16,428

   

1

   

215

  
  

06/2021

  

190.00

   

16,428

   

1

   

24

  
TOTAL CALL OPTIONS PURCHASED
(Cost $4,401)
          

2,318

  
TOTAL PURCHASED OPTIONS
(Cost $4,401)
          

2,318

  
Total Investments - 106.68%
(Cost $3,858,008)
         

$

3,946,367

  

Liabilities in Excess of Other Assets - (6.68%)(f)

  

(246,945

)

 

NET ASSETS - 100.00%

 

$

3,699,422

  

Portfolio Footnotes

(a)  Security, or a portion of security, is being held as collateral for short sales or forward foreign currency exchange contracts. At May 31, 2021, the aggregate fair market value of those securities was $2,416,385, representing 65.32% of net assets.

(b)  Non-income-producing security.

(c)  Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of May 31, 2021, these securities had a total value of $32,607 or 0.88% of net assets.

(d)  Security fair valued using significant unobservable inputs and classified as a Level 3 security. As of May 31, 2021, the total fair market value of these securities was $158,315, representing 4.28% of net assets.

(e)  Represents a holding that is a direct investment into a private company and is not a listed or publicly traded entity.

(f)  Includes cash held as collateral for short sales.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
64


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (26.48%)

 

Banks - (5.10%)

 

First Citizens BancShares, Inc., Class A

  

(89

)

 

$

(76,594

)

 

Huntington BancShares, Inc.

  

(7,056

)

  

(111,908

)

 
   

(188,502

)

 

Electronics - (0.89%)

 

II-VI, Inc.

  

(488

)

  

(32,877

)

 

Food - (0.37%)

 

Performance Food Group Co.

  

(272

)

  

(13,635

)

 

Insurance - (4.80%)

 

Aon Plc, Class A

  

(701

)

  

(177,612

)

 

Machinery - Diversified - (1.91%)

 

Middleby Corp. (The)

  

(429

)

  

(70,476

)

 

Oil & Gas - (1.27%)

 

Cabot Oil & Gas Corp.

  

(2,862

)

  

(46,937

)

 

Pharmaceuticals - (3.32%)

 

AstraZeneca Plc, ADR

  

(2,165

)

  

(122,907

)

 

Real Estate Investment Trusts - (1.43%)

 

Equity Commonwealth

  

(1,934

)

  

(53,069

)

 

Semiconductors - (4.48%)

 

Advanced Micro Devices, Inc.

  

(2,068

)

  

(165,606

)

 

Software - (1.81%)

 

salesforce.com, Inc.

  

(282

)

  

(67,144

)

 

Transportation - (1.10%)

 

Canadian National Railway Co.

  

(218

)

  

(24,540

)

 

Canadian Pacific Railway Ltd.

  

(200

)

  

(16,252

)

 
   

(40,792

)

 
TOTAL COMMON STOCKS
(Proceeds $950,519)
  

(979,557

)

 

EXCHANGE-TRADED FUNDS - (10.85%)

 

Equity Funds - (10.85%)

 

Invesco QQQ Trust Series 1

  

(400

)

  

(133,572

)

 

SPDR S&P 500 ETF Trust

  

(400

)

  

(168,016

)

 

VanEck Vectors Semiconductor ETF

  

(400

)

  

(99,676

)

 
   

(401,264

)

 
TOTAL EXCHANGE-TRADED FUNDS
(Proceeds $397,743)
  

(401,264

)

 
TOTAL SECURITIES SOLD SHORT
(Proceeds $1,348,262)
 

$

(1,380,821

)

 

See Notes to Financial Statements.

Annual Report | May 31, 2021
65


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

EQUITY SWAP CONTRACTS

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 Analog
Devices,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





03/11/2022
 

$

  

$

  

$

  

USD

82,794

  

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Herman
Miller,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





03/11/2022
  

   

   

  

USD

22,944

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Realty
Income
Corp.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





03/11/2022
  

   

   

  

USD

59,029

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 S&P
Global,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





03/11/2022
  

   

   

  

USD

173,797

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 STERIS
Plc
 
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.340%)
 





03/11/2022
  

   

   

  

USD

96,957

   

  
            

$

      

$

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
66


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Appreciation
 

CAD

14,200

  

USD

11,541

  

Morgan Stanley & Co.

 

06/15/2021

 

$

225

  

USD

3,645

  

CAD

4,400

  

Morgan Stanley & Co.

 

06/15/2021

  

0

  

EUR

58,020

  

USD

68,588

  

Morgan Stanley & Co.

 

06/15/2021

  

2,379

  
  

$

2,604

  
Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Depreciation
 

USD

80,808

  

CAD

99,240

  

Morgan Stanley & Co.

 

06/15/2021

 

$

(1,412

)

 

USD

69,483

  

EUR

58,020

  

Morgan Stanley & Co.

 

06/15/2021

  

(1,484

)

 
  

$

(2,896

)

 

The following is a summary of investments classified by country exposure:

Country

 

% of Net Assets(a)

 

United Kingdom

  

9.19

%

 

Bermuda

  

2.04

%

 

Canada

  

1.98

%

 

Italy

  

1.09

%

 

United States

  

92.38

%

 

Liabilities in Excess of Other Assets

  

(6.68

)%

 
   

100.00

%

 

(a)  These percentages represent long positions only and are not net of short positions.

Abbreviations:

ADR - American Depositary Receipt

bps - Basis Points. 100 Basis Points is equal to 1 percentage point.

CAD - Canadian dollar

ETF - Exchange-Traded Fund

EUR - Euro

LLC - Limited Liability Company

Ltd. - Limited

PIPE - Private investment in public equity

Plc - Public Limited Company

SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.

S&P - Standard & Poor's

SPDR - Standard & Poor's Depositary Receipt

USD - United States Dollar

See Notes to Financial Statements.

Annual Report | May 31, 2021
67


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

The following table summarizes the Water Island Long/Short Fund's investments and derivative financial instruments categorized in the fair value hierarchy as of May 31, 2021:

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 

Common Stocks**

 

$

3,696,452

  

$

  

$

  

$

3,696,452

  

Convertible Corporate Bonds

 

Auto Manufacturers

  

   

32,607

   

   

32,607

  

Private Investments

  

   

   

156,815

   

156,815

  

Warrants

  

4,544

   

   

   

4,544

  

Private Investments

  

   

52,131

   

1,500

   

53,631

  

Purchased Options

  

2,318

   

   

   

2,318

  

TOTAL

 

$

3,703,314

  

$

84,738

  

$

158,315

  

$

3,946,367

  

Other Financial Instruments***

 

Assets

 

Forward Foreign Currency Exchange Contracts

 

$

  

$

2,604

  

$

  

$

2,604

  

Equity Swaps

  

0

   

   

   

0

  

Liabilities

 

Common Stocks**

  

(979,557

)

  

   

   

(979,557

)

 

Exchange-Traded Funds

  

(401,264

)

  

   

   

(401,264

)

 

Forward Foreign Currency Exchange Contracts

  

   

(2,896

)

  

   

(2,896

)

 

TOTAL

 

$

(1,380,821

)

 

$

(292

)

 

$

  

$

(1,381,113

)

 

*  Refer to footnote 2 where leveling hierarchy is defined.

**  Refer to Portfolio of Investments for sector information.

***  Other financial instruments are instruments such as securities sold short, equity swaps and forward foreign currency exchange contracts.

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended May 31, 2021:

Investments
in Securities
 Balance as of
May 31, 2020
 Realized
Gain (Loss)
 Change in
Unrealized
Appreciation
(Depreciation)
 

Purchases

 Sales
Proceeds
 Transfers
into
Level 3
 Transfers
out of
Level 3
 Balance as of
May 31, 2021
 Net change in
Unrealized
Appreciation
(Depreciation)
from
investments
still held as of
May 31, 2021
 
Common
Stocks
 

$

44,492

  

$

2,029

  

$

(1,312

)

 

$

  

$

(45,209

)

 

$

  

$

  

$

  

$

  
Convertible
Corporate
Bonds
  

   

   

(17,185

)

  

174,000

   

   

   

   

156,815

   

(17,185

)

 
Private
Investments
  

   

   

(25

)

  

1,525

   

   

   

   

1,500

   

(25

)

 

Total

 

$

44,492

  

$

2,029

  

$

(18,522

)

 

$

175,525

  

$

(45,209

)

 

$

  

$

  

$

158,315

  

$

(17,210

)

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
68


Water Island Long/Short Fund  Portfolio of Investments (continued)

May 31, 2021

The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of May 31, 2021:

Investments in
Securities
 Fair Value at
May 31, 2021
 Valuation
Technique
 Unobservable
Input
 Range of
Values
 Weighted
Average
 
Convertible
Corporate Bonds
 

$

156,815

 Discounted
Cash Flow
 

Spread

 800 Bps 800 Bps 
Private
Investments
 

1,500

 

Cost

 

Cost

 $.091-$1 $0.93 

See Notes to Financial Statements.

Annual Report | May 31, 2021
69


The Arbitrage Funds

  Arbitrage
Fund
 Water Island
Event-Driven
Fund
 

ASSETS

 

Investments:

 

At cost of unaffiliated investments

 

$

1,440,314,313

  

$

132,631,388

  

At cost of affiliated investments

 

$

60,632,644

  

$

  

At fair value of unaffiliated investments (Note 2)

 

$

1,508,223,568

  

$

137,840,748

  

At fair value of affiliated investments (Note 2)

 

$

75,829,593

  

$

  

Cash

  

8,390,300

   

262,919

  

Cash denominated in foreign currency (Cost $0, $8, $0 and $1,304)

  

   

8

  

Deposits with brokers for securities sold short (Note 2)

  

247,045,188

   

25,656,785

  

Segregated cash for collateral (Note 2)

  

50,710,088

   

5,996,702

  

Receivable for investment securities sold

  

4,762,251

   

3,870,433

  

Receivable for capital shares sold

  

4,844,861

   

179,146

  

Unrealized appreciation on forward foreign currency exchange contracts (Note 8)

  

819,607

   

51,130

  

Dividends and interest receivable

  

725,700

   

153,064

  

Receivable due from Adviser (Note 5)

  

   

  

Prepaid expenses

  

80,999

   

25,116

  

Total Assets

  

1,901,432,155

   

174,036,051

  

LIABILITIES

 
Securities sold short, at value (Note 2) (proceeds $256,831,968, $26,839,321, $9,923,810 and
$1,348,262)
  

253,830,619

   

25,947,103

  

Foreign currency due to bank (Cost $9, $0, $0, $0)

  

10

   

  

Written options, at value (Note 2) (premiums received $0, $0, $4,977 and $0)

  

   

  

Line of credit payable (Note 4)

  

   

7,500,000

  

Payable for investment securities purchased

  

43,599,992

   

3,447,060

  

Unrealized depreciation on forward foreign currency exchange contracts (Note 8)

  

2,966,516

   

267,080

  

Payable for capital shares redeemed

  

572,595

   

30,975

  

Payable to Adviser (Note 5)

  

1,342,149

   

105,215

  

Dividends payable on securities sold short

  

   

  

Payable to Distributor (Note 5)

  

42,807

   

2,519

  

Payable to Administrator (Note 5)

  

59,909

   

13,682

  

Payable to Transfer Agent (Note 5)

  

113,153

   

12,407

  

Payable to Custodian

  

26,151

   

13,409

  

Interest expense payable

  

48,200

   

8,657

  

Payable for swap reset

  

712,520

   

52,009

  

Audit and legal fees payable

  

105,365

   

23,127

  

Payable to Trustees

  

46,210

   

4,763

  

Chief Compliance Officer Fees payable (Note 5)

  

20,743

   

2,449

  

Chief Financial Officer Fees payable (Note 5)

  

4,913

   

957

  

Other accrued expenses and liabilities

  

54,609

   

10,963

  

Total Liabilities

  

303,546,461

   

37,442,375

  

NET ASSETS

 

$

1,597,885,694

  

$

136,593,676

  

NET ASSETS CONSIST OF:

 

Paid-in capital

 

$

1,527,061,976

  

$

174,810,586

  

Distributable earnings (Accumulated loss)

  

70,823,718

   

(38,216,910

)

 

NET ASSETS

 

$

1,597,885,694

  

$

136,593,676

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
70


  Statement of Assets and Liabilities

  May 31, 2021

  Water
Island Credit
Opportunities Fund
 Water Island
Long/Short
Fund
 

ASSETS

 

Investments:

 

At cost of unaffiliated investments

 

$

102,587,703

  

$

3,858,008

  

At cost of affiliated investments

 

$

  

$

  

At fair value of unaffiliated investments (Note 2)

 

$

105,368,936

  

$

3,946,367

  

At fair value of affiliated investments (Note 2)

 

$

  

$

  

Cash

  

2,941,000

   

75,041

  

Cash denominated in foreign currency (Cost $0, $8, $0 and $1,304)

  

   

1,303

  

Deposits with brokers for securities sold short (Note 2)

  

11,200,482

   

1,374,627

  

Segregated cash for collateral (Note 2)

  

3,129,670

   

233,214

  

Receivable for investment securities sold

  

100,799

   

21,332

  

Receivable for capital shares sold

  

120,848

   

  

Unrealized appreciation on forward foreign currency exchange contracts (Note 8)

  

7,687

   

2,604

  

Dividends and interest receivable

  

1,654,730

   

2,201

  

Receivable due from Adviser (Note 5)

  

   

11,736

  

Prepaid expenses

  

47,597

   

7,711

  

Total Assets

  

124,571,749

   

5,676,136

  

LIABILITIES

 
Securities sold short, at value (Note 2) (proceeds $256,831,968, $26,839,321, $9,923,810 and
$1,348,262)
  

11,191,944

   

1,380,821

  

Foreign currency due to bank (Cost $9, $0, $0, $0)

  

   

  

Written options, at value (Note 2) (premiums received $0, $0, $4,977 and $0)

  

5,300

   

  

Line of credit payable (Note 4)

  

   

450,000

  

Payable for investment securities purchased

  

6,702,912

   

108,276

  

Unrealized depreciation on forward foreign currency exchange contracts (Note 8)

  

19,366

   

2,896

  

Payable for capital shares redeemed

  

99,586

   

  

Payable to Adviser (Note 5)

  

36,500

   

  

Dividends payable on securities sold short

  

225

   

  

Payable to Distributor (Note 5)

  

1,591

   

3

  

Payable to Administrator (Note 5)

  

13,869

   

4,253

  

Payable to Transfer Agent (Note 5)

  

8,679

   

226

  

Payable to Custodian

  

4,268

   

4,357

  

Interest expense payable

  

16,736

   

576

  

Payable for swap reset

  

4,147

   

1,224

  

Audit and legal fees payable

  

20,728

   

15,980

  

Payable to Trustees

  

3,327

   

1,325

  

Chief Compliance Officer Fees payable (Note 5)

  

2,911

   

106

  

Chief Financial Officer Fees payable (Note 5)

  

870

   

594

  

Other accrued expenses and liabilities

  

10,798

   

6,077

  

Total Liabilities

  

18,143,757

   

1,976,714

  

NET ASSETS

 

$

106,427,992

  

$

3,699,422

  

NET ASSETS CONSIST OF:

 

Paid-in capital

 

$

106,198,477

  

$

3,031,591

  

Distributable earnings (Accumulated loss)

  

229,515

   

667,831

  

NET ASSETS

 

$

106,427,992

  

$

3,699,422

  

Annual Report | May 31, 2021
71


The Arbitrage Funds

  Arbitrage
Fund
 Water Island
Event-Driven
Fund
 

PRICING OF SHARES:

 

CLASS R SHARES:

 

Net assets applicable to Class R shares

 

$

97,908,950

  

$

10,115,977

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

7,470,288

   

889,258

  

Net asset value and offering price per share

 

$

13.11

  

$

11.38

  

CLASS I SHARES:

 

Net assets applicable to Class I shares

 

$

1,449,309,460

  

$

125,093,356

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

106,543,062

   

10,905,830

  

Net asset value and offering price per share

 

$

13.60

  

$

11.47

  

CLASS C SHARES:

 

Net assets applicable to Class C shares

 

$

18,042,993

  

$

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

1,471,794

   

  

Net asset value and offering price per share(a)

 

$

12.26

  

$

  

CLASS A SHARES:

 

Net assets applicable to Class A shares

 

$

32,624,291

  

$

1,384,343

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

2,494,464

   

121,844

  

Net asset value and offering price per share(a)

 

$

13.08

  

$

11.36

  

Maximum offering price per share (NAV/(100% — maximum sales charge))

 

$

13.45

  

$

11.74

  

Maximum sales charge

  

2.75

%

  

3.25

%

 

(a)  Redemption price varies based on length of time held (Note 1).

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
72


  Statement of Assets and Liabilities

  May 31, 2021

  Water
Island Credit
Opportunities Fund
 Water Island
Long/Short
Fund
 

PRICING OF SHARES:

 

CLASS R SHARES:

 

Net assets applicable to Class R shares

 

$

7,553,319

  

$

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

743,200

   

  

Net asset value and offering price per share

 

$

10.16

  

$

  

CLASS I SHARES:

 

Net assets applicable to Class I shares

 

$

98,777,175

  

$

3,699,422

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

9,764,459

   

278,711

  

Net asset value and offering price per share

 

$

10.12

  

$

13.27

  

CLASS C SHARES:

 

Net assets applicable to Class C shares

 

$

  

$

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

   

  

Net asset value and offering price per share(a)

 

$

  

$

  

CLASS A SHARES:

 

Net assets applicable to Class A shares

 

$

97,498

  

$

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

9,633

   

  

Net asset value and offering price per share(a)

 

$

10.12

  

$

  

Maximum offering price per share (NAV/(100% — maximum sales charge))

 

$

10.46

  

$

  

Maximum sales charge

  

3.25

%

  

  

Annual Report | May 31, 2021
73


The Arbitrage Funds

  Arbitrage
Fund
 Water Island
Event-Driven
Fund
 

INVESTMENT INCOME

 

Dividend income

 

$

21,103,062

  

$

1,352,352

  

Dividend income from affiliated investments

  

173,235

   

  

Foreign taxes withheld on dividends

  

(159,577

)

  

(16,411

)

 

Interest income

  

387,627

   

291,647

  

Securities lending income

  

   

7,999

  

Total Investment Income

  

21,504,347

   

1,635,587

  

EXPENSES

 

Investment advisory fees (Note 5)

  

15,330,102

   

1,283,073

  

Distribution and service fees (Note 5)

 

Class R(a)

  

231,741

   

21,366

  

Class C(b)(c)

  

174,801

   

3,400

  

Class A

  

65,397

   

1,996

  

Administrative fees (Note 5)

  

367,264

   

64,693

  

Chief Compliance Officer fees (Note 5)

  

219,360

   

18,259

  

Trustees' fees

  

281,311

   

26,981

  

Dividend expense

  

47,082

   

16,159

  

Interest rebate expense

  

1,566,409

   

204,290

  

Transfer agent fees (Note 5)

  

1,273,547

   

143,229

  

Custodian and bank service fees

  

265,914

   

83,587

  

Registration and filing fees

  

82,660

   

63,144

  

Printing of shareholder reports

  

104,285

   

12,756

  

Professional fees

  

209,343

   

47,211

  

Line of credit interest expense (Note 4)

  

68,432

   

17,354

  

Insurance expense

  

66,327

   

5,199

  

Chief Financial Officer fees (Note 5)

  

59,863

   

11,269

  

Other expenses

  

89,006

   

23,660

  

Total Expenses

  

20,502,844

   

2,047,626

  

Fees waived and/or reimbursed by the Adviser, Class R (Note 5)(a)

  

(57,061

)

  

(7,526

)

 

Fees waived and/or reimbursed by the Adviser, Class I (Note 5)

  

(803,733

)

  

(94,924

)

 

Fees waived and/or reimbursed by the Adviser, Class C (Note 5)(b)(c)

  

(10,754

)

  

(264

)

 

Fees waived and/or reimbursed by the Adviser, Class A (Note 5)

  

(16,148

)

  

(706

)

 

Net Expenses

  

19,615,148

   

1,944,206

  

NET INVESTMENT INCOME (LOSS)

  

1,889,199

   

(308,619

)

 

(a)  Effective May 25, 2021, Class R shares of the Long/Short Fund were liquidated.

(b)  Effective April 27, 2021, Class C shares of the Event-Driven Fund were liquidated.

(c)  Effective April 27, 2021, Class C shares of the Credit Opportunities Fund were liquidated.

See Notes to Financial Statements.

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74


  Statement of Operations

  For the Year Ended May 31, 2021

  Water
Island Credit
Opportunities Fund
 Water Island
Long/Short
Fund
 

INVESTMENT INCOME

 

Dividend income

 

$

64,583

  

$

14,693

  

Dividend income from affiliated investments

  

   

  

Foreign taxes withheld on dividends

  

   

(900

)

 

Interest income

  

2,603,929

   

203

  

Securities lending income

  

   

127

  

Total Investment Income

  

2,668,512

   

14,123

  

EXPENSES

 

Investment advisory fees (Note 5)

  

722,963

   

34,902

  

Distribution and service fees (Note 5)

 

Class R(a)

  

8,224

   

33

  

Class C(b)(c)

  

6,163

   

  

Class A

  

213

   

  

Administrative fees (Note 5)

  

82,051

   

25,215

  

Chief Compliance Officer fees (Note 5)

  

11,910

   

471

  

Trustees' fees

  

18,710

   

5,499

  

Dividend expense

  

4,973

   

2,388

  

Interest rebate expense

  

56,138

   

21,327

  

Transfer agent fees (Note 5)

  

89,168

   

2,586

  

Custodian and bank service fees

  

31,754

   

22,635

  

Registration and filing fees

  

64,391

   

37,728

  

Printing of shareholder reports

  

9,718

   

2,058

  

Professional fees

  

25,895

   

16,170

  

Line of credit interest expense (Note 4)

  

3,391

   

115

  

Insurance expense

  

2,694

   

91

  

Chief Financial Officer fees (Note 5)

  

9,766

   

7,102

  

Other expenses

  

22,009

   

13,478

  

Total Expenses

  

1,170,131

   

191,798

  

Fees waived and/or reimbursed by the Adviser, Class R (Note 5)(a)

  

(14,935

)

  

(579

)

 

Fees waived and/or reimbursed by the Adviser, Class I (Note 5)

  

(327,225

)

  

(127,151

)

 

Fees waived and/or reimbursed by the Adviser, Class C (Note 5)(b)(c)

  

(2,734

)

  

  

Fees waived and/or reimbursed by the Adviser, Class A (Note 5)

  

(386

)

  

  

Net Expenses

  

824,851

   

64,068

  

NET INVESTMENT INCOME (LOSS)

  

1,843,661

   

(49,945

)

 

Annual Report | May 31, 2021
75


The Arbitrage Funds

  Arbitrage
Fund
 Water Island
Event-Driven
Fund
 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES

 

Net realized gains (losses) from:

 

Unaffiliated investments

 

$

182,484,017

  

$

21,481,075

  

Purchased option contracts

  

2,387,236

   

(5,551

)

 

Swap contracts

  

(59,667,677

)

  

(3,277,975

)

 

Securities sold short

  

(109,802,820

)

  

(9,159,552

)

 

Written option contracts

  

119,130

   

36,803

  

Forward currency contracts

  

(4,756,529

)

  

(312,861

)

 

Foreign currency transactions (Note 8)

  

(681,188

)

  

24,732

  

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

81,360,181

   

5,133,104

  

Affiliated investments

  

9,433,047

   

  

Securities sold short

  

10,863,412

   

2,228,494

  

Foreign currency transactions (Note 8)

  

4,136

   

866

  

Purchased option contracts

  

(1,354,350

)

  

(156,778

)

 

Written option contracts

  

   

  

Forward currency contracts

  

(5,032,588

)

  

(357,496

)

 

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES

  

105,356,007

   

15,634,861

  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

 

$

107,245,206

  

$

15,326,242

  

See Notes to Financial Statements.

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76


  Statement of Operations

  For the Year Ended May 31, 2021

  Water
Island Credit
Opportunities Fund
 Water Island
Long/Short
Fund
 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES

 

Net realized gains (losses) from:

 

Unaffiliated investments

 

$

3,994,378

  

$

1,234,358

  

Purchased option contracts

  

655,253

   

(67,328

)

 

Swap contracts

  

(376,581

)

  

(23,825

)

 

Securities sold short

  

(3,042,868

)

  

(275,252

)

 

Written option contracts

  

166,314

   

37,620

  

Forward currency contracts

  

(24,429

)

  

(9,131

)

 

Foreign currency transactions (Note 8)

  

(1,681

)

  

(171

)

 

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

3,306,710

   

8,952

  

Affiliated investments

  

   

  

Securities sold short

  

(637,868

)

  

528

  

Foreign currency transactions (Note 8)

  

87

   

56

  

Purchased option contracts

  

(342,137

)

  

(3,306

)

 

Written option contracts

  

7,644

   

(6,551

)

 

Forward currency contracts

  

(11,679

)

  

(1,576

)

 

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES

  

3,693,143

   

894,374

  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

 

$

5,536,804

  

$

844,429

  

Annual Report | May 31, 2021
77


The Arbitrage Funds

  

Arbitrage Fund

 
  Year Ended
May 31, 2021
 Year Ended
May 31, 2020
 

FROM OPERATIONS

 

Net investment income (loss)

 

$

1,889,199

  

$

(2,736,933

)

 

Net realized gains (losses) from:

 

Unaffiliated investments

  

182,484,017

   

93,070,280

  

Purchased option contracts

  

2,387,236

   

(5,039,302

)

 

Swap contracts

  

(59,667,677

)

  

(12,721,184

)

 

Securities sold short

  

(109,802,820

)

  

(11,978,565

)

 

Written option contracts

  

119,130

   

317,902

  

Forward currency contracts

  

(4,756,529

)

  

3,988,837

  

Foreign currency transactions

  

(681,188

)

  

2,309,502

  

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

81,360,181

   

(25,875,315

)

 

Affiliated investments

  

9,433,047

   

5,728,034

  

Securities sold short

  

10,863,412

   

929,782

  

Foreign currency transactions

  

4,136

   

389

  

Purchased option contracts

  

(1,354,350

)

  

252,665

  

Written option contracts

  

   

(25,601

)

 

Forward currency contracts

  

(5,032,588

)

  

(2,224,904

)

 

Net increase in net assets resulting from operations

  

107,245,206

   

45,995,587

  

FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

 

Distributions from distributable earnings, Class R

  

(5,828,800

)

  

(3,028,417

)

 

Distributions from distributable earnings, Class I

  

(77,238,670

)

  

(30,760,287

)

 

Distributions from distributable earnings, Class C(a)

  

(1,172,789

)

  

(441,292

)

 

Distributions from distributable earnings, Class A

  

(1,718,463

)

  

(377,484

)

 

Decrease in net assets from distributions to shareholders

  

(85,958,722

)

  

(34,607,480

)

 

FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):

 

Proceeds from shares sold

  

601,365,070

   

388,612,998

  

Shares issued in reinvestment of distributions

  

66,859,378

   

27,514,664

  

Payments for shares redeemed

  

(471,800,936

)

  

(794,621,293

)

 

Net increase (decrease) in net assets from capital share transactions

  

196,423,512

   

(378,493,631

)

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

  

217,709,996

   

(367,105,524

)

 

NET ASSETS

 

Beginning of year

  

1,380,175,698

   

1,747,281,222

  

End of year

 

$

1,597,885,694

  

$

1,380,175,698

  

(a)  Effective April 27, 2021, Class C shares of the Event-Driven Fund were liquidated.

See Notes to Financial Statements.

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78


  Statement of Changes in Net Assets

  Water Island
Event-Driven Fund
 
  Year Ended
May 31, 2021
 Year Ended
May 31, 2020
 

FROM OPERATIONS

 

Net investment income (loss)

 

$

(308,619

)

 

$

212,973

  

Net realized gains (losses) from:

 

Unaffiliated investments

  

21,481,075

   

8,182,595

  

Purchased option contracts

  

(5,551

)

  

(621,405

)

 

Swap contracts

  

(3,277,975

)

  

1,324,551

  

Securities sold short

  

(9,159,552

)

  

(2,345,694

)

 

Written option contracts

  

36,803

   

181,455

  

Forward currency contracts

  

(312,861

)

  

86,167

  

Foreign currency transactions

  

24,732

   

19,249

  

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

5,133,104

   

269,869

  

Affiliated investments

  

   

  

Securities sold short

  

2,228,494

   

(1,701,864

)

 

Foreign currency transactions

  

866

   

26

  

Purchased option contracts

  

(156,778

)

  

26,088

  

Written option contracts

  

   

(4,956

)

 

Forward currency contracts

  

(357,496

)

  

(29,486

)

 

Net increase in net assets resulting from operations

  

15,326,242

   

5,599,568

  

FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

 

Distributions from distributable earnings, Class R

  

   

(57,935

)

 

Distributions from distributable earnings, Class I

  

(250,689

)

  

(460,278

)

 

Distributions from distributable earnings, Class C(a)

  

   

  

Distributions from distributable earnings, Class A

  

(1,490

)

  

(1,743

)

 

Decrease in net assets from distributions to shareholders

  

(252,179

)

  

(519,956

)

 

FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):

 

Proceeds from shares sold

  

28,932,531

   

58,223,304

  

Shares issued in reinvestment of distributions

  

243,637

   

469,438

  

Payments for shares redeemed

  

(15,135,964

)

  

(81,019,387

)

 

Net increase (decrease) in net assets from capital share transactions

  

14,040,204

   

(22,326,645

)

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

  

29,114,267

   

(17,247,033

)

 

NET ASSETS

 

Beginning of year

  

107,479,409

   

124,726,442

  

End of year

 

$

136,593,676

  

$

107,479,409

  

Annual Report | May 31, 2021
79


The Arbitrage Funds

  Water Island Credit
Opportunities Fund
 
  Year Ended
May 31, 2021
 Year Ended
May 31, 2020
 

FROM OPERATIONS

 

Net investment income (loss)

 

$

1,843,661

  

$

1,562,938

  

Net realized gains (losses) from:

 

Unaffiliated investments

  

3,994,378

   

175,502

  

Purchased option contracts

  

655,253

   

130,754

  

Swap contracts

  

(376,581

)

  

(113,022

)

 

Securities sold short

  

(3,042,868

)

  

511,864

  

Written option contracts

  

166,314

   

21,926

  

Forward currency contracts

  

(24,429

)

  

  

Foreign currency transactions

  

(1,681

)

  

(106

)

 

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

3,306,710

   

(98,597

)

 

Securities sold short

  

(637,868

)

  

(873,080

)

 

Foreign currency transactions

  

87

   

  

Purchased option contracts

  

(342,137

)

  

243,824

  

Written option contracts

  

7,644

   

(9,147

)

 

Forward currency contracts

  

(11,679

)

  

  

Net increase in net assets resulting from operations

  

5,536,804

   

1,552,856

  

FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

 

Distributions from distributable earnings, Class R(b)

  

(69,080

)

  

(233,649

)

 

Distributions from distributable earnings, Class I

  

(1,867,325

)

  

(1,648,549

)

 

Distributions from distributable earnings, Class C(c)

  

(10,822

)

  

(10,320

)

 

Distributions from distributable earnings, Class A

  

(2,060

)

  

(7,297

)

 

Decrease in net assets from distributions to shareholders

  

(1,949,287

)

  

(1,899,815

)

 

FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):

 

Proceeds from shares sold

  

60,332,486

   

25,851,224

  

Shares issued in reinvestment of distributions

  

1,946,010

   

1,887,360

  

Payments for shares redeemed

  

(20,726,297

)

  

(24,332,391

)

 

Net increase (decrease) in net assets from capital share transactions

  

41,552,199

   

3,406,193

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

  

45,139,716

   

3,059,234

  

NET ASSETS

 

Beginning of year

  

61,288,276

   

58,229,042

  

End of year

 

$

106,427,992

  

$

61,288,276

  

(b)  Effective May 25, 2021, Class R shares of the Long/Short Fund were liquidated.

(c)  Effective April 27, 2021, Class C shares of the Credit Opportunities Fund were liquidated.

See Notes to Financial Statements.

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80


  Statement of Changes in Net Assets

  

Water Island Long/Short Fund

 
  Year Ended
May 31, 2021
 Year Ended
May 31, 2020
 

FROM OPERATIONS

 

Net investment income (loss)

 

$

(49,945

)

 

$

59,555

  

Net realized gains (losses) from:

 

Unaffiliated investments

  

1,234,358

   

20,869

  

Purchased option contracts

  

(67,328

)

  

(51,982

)

 

Swap contracts

  

(23,825

)

  

(5,921

)

 

Securities sold short

  

(275,252

)

  

48,669

  

Written option contracts

  

37,620

   

14,261

  

Forward currency contracts

  

(9,131

)

  

2,966

  

Foreign currency transactions

  

(171

)

  

(331

)

 

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

8,952

   

118,152

  

Securities sold short

  

528

   

(64,266

)

 

Foreign currency transactions

  

56

   

1

  

Purchased option contracts

  

(3,306

)

  

(8,504

)

 

Written option contracts

  

(6,551

)

  

8,092

  

Forward currency contracts

  

(1,576

)

  

184

  

Net increase in net assets resulting from operations

  

844,429

   

141,745

  

FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

 

Distributions from distributable earnings, Class R(b)

  

(1,319

)

  

(176

)

 

Distributions from distributable earnings, Class I

  

(247,223

)

  

(36,186

)

 

Distributions from distributable earnings, Class C(c)

  

   

  

Distributions from distributable earnings, Class A

  

   

  

Decrease in net assets from distributions to shareholders

  

(248,542

)

  

(36,362

)

 

FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):

 

Proceeds from shares sold

  

1,064,932

   

70,694

  

Shares issued in reinvestment of distributions

  

248,542

   

36,362

  

Payments for shares redeemed

  

(130,308

)

  

(666,226

)

 

Net increase (decrease) in net assets from capital share transactions

  

1,183,166

   

(559,170

)

 

TOTAL INCREASE (DECREASE) IN NET ASSETS

  

1,779,053

   

(453,787

)

 

NET ASSETS

 

Beginning of year

  

1,920,369

   

2,374,156

  

End of year

 

$

3,699,422

  

$

1,920,369

  

Annual Report | May 31, 2021
81


Arbitrage Fund – Class R  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

13.04

  

$

12.92

  

$

12.65

  

$

13.06

  

$

12.78

  
Income (loss) from
investment operations
 

Net investment income (loss)(a)

  

(0.01

)(c)

  

(0.05

)

  

(0.03

)(c)

  

0.05

   

(0.13

)(b)

 
Net realized and unrealized
gains (losses) on investments
and foreign currencies
  

0.97

   

0.44

   

0.52

   

(0.01

)(c)

  

0.53

(d)

 

Total from investment operations

  

0.96

   

0.39

   

0.49

   

0.04

   

0.40

  

Less distributions

 

From net investment income

  

   

   

(0.06

)

  

(0.09

)

  

  

From net realized gains

  

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

(0.89

)

  

(0.27

)

  

(0.22

)

  

(0.45

)

  

(0.12

)

 
Proceeds from redemption
fees collected
  

   

   

   

0.00

(e)

  

0.00

(e)

 

Net asset value, end of period

 

$

13.11

  

$

13.04

  

$

12.92

  

$

12.65

  

$

13.06

  

Total return(f)

  

7.58

%

  

3.07

%

  

3.89

%

  

0.31

%

  

3.17

%

 
Net assets, end of period
(in 000s)
 

$

97,909

  

$

98,715

  

$

163,349

  

$

222,309

  

$

340,353

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(g)

  

1.64

%

  

1.66

%

  

1.94

%

  

1.91

%

  

1.87

%(b)

 
Net expenses after advisory
fees waived and expenses
reimbursed(g)(h)
  

1.58

%

  

1.63

%

  

1.93

%

  

1.90

%

  

1.87

%(b)

 

Net investment income (loss)

  

(0.08

%)(c)

  

(0.36

%)

  

(0.20

%)(c)

  

0.41

%

  

(1.00

%)(b)

 

Portfolio turnover rate

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

(a)  Per share amounts were calculated using average shares outstanding for the year.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(c)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(d)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(e)  Amount rounds to less than $0.01 per share.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(g)  Dividend expense totaled 0.00%, 0.15%, 0.46%, 0.42% and 0.36% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.11%, 0.01%, 0.00%, 0.01% and 0.03% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(h)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.47%, 1.47%, 1.47%, 1.47% and 1.48% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
82


Arbitrage Fund – Class I  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

13.47

  

$

13.32

  

$

13.03

  

$

13.46

  

$

13.13

  
Income (loss) from
investment operations
 

Net investment income (loss)(a)

  

0.02

   

(0.02

)

  

0.01

   

0.05

   

(0.10

)(b)

 
Net realized and unrealized
gains on investments and
foreign currencies
  

1.00

   

0.45

   

0.54

   

0.01

   

0.55

(c)

 

Total from investment operations

  

1.02

   

0.43

   

0.55

   

0.06

   

0.45

  

Less distributions

 

From net investment income

  

   

(0.01

)

  

(0.10

)

  

(0.13

)

  

  

From net realized gains

  

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

(0.89

)

  

(0.28

)

  

(0.26

)

  

(0.49

)

  

(0.12

)

 
Proceeds from redemption
fees collected
  

   

   

   

0.00

(d)

  

0.00

(d)

 

Net asset value, end of period

 

$

13.60

  

$

13.47

  

$

13.32

  

$

13.03

  

$

13.46

  

Total return(e)

  

7.87

%

  

3.27

%

  

4.21

%

  

0.50

%

  

3.47

%

 
Net assets, end of period
(in 000s)
 

$

1,449,309

  

$

1,243,838

  

$

1,546,542

  

$

1,510,598

  

$

1,492,094

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(f)

  

1.39

%

  

1.41

%

  

1.69

%

  

1.66

%

  

1.62

%(b)

 
Net expenses after advisory
fees waived and expenses
reimbursed(f)(g)
  

1.33

%

  

1.38

%

  

1.68

%

  

1.65

%

  

1.62

%(b)

 

Net investment income (loss)

  

0.16

%

  

(0.13

%)

  

0.06

%

  

0.35

%

  

(0.76

%)(b)

 

Portfolio turnover rate

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

(a)  Per share amounts were calculated using average shares outstanding for the year.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(c)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(d)  Amount rounds to less than $0.01 per share.

(e)  Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(f)  Dividend expense totaled 0.00%, 0.15%, 0.46%, 0.42% and 0.36% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.11%, 0.01%, 0.00%, 0.01% and 0.03% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(g)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.22%, 1.22%, 1.22%, 1.22% and 1.23% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Annual Report | May 31, 2021
83


Arbitrage Fund – Class C  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

12.34

  

$

12.34

  

$

12.12

  

$

12.54

  

$

12.37

  
Income (loss) from
investment operations
 

Net investment loss(a)

  

(0.10

)(b)

  

(0.14

)

  

(0.12

)(b)

  

(0.07

)(b)

  

(0.22

)(c)

 
Net realized and unrealized
gains on investments and
foreign currencies
  

0.91

   

0.41

   

0.50

   

0.01

   

0.51

(d)

 

Total from investment operations

  

0.81

   

0.27

   

0.38

   

(0.06

)

  

0.29

  

Less distributions

 

From net investment income

  

   

   

   

(0.00

)(e)

  

  

From net realized gains

  

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Net asset value, end of period

 

$

12.26

  

$

12.34

  

$

12.34

  

$

12.12

  

$

12.54

  

Total return(f)(g)

  

6.77

%

  

2.24

%

  

3.11

%

  

(0.45

%)

  

2.38

%

 
Net assets, end of period
(in 000s)
 

$

18,043

  

$

19,860

  

$

19,050

  

$

22,917

  

$

26,900

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(h)

  

2.39

%

  

2.41

%

  

2.69

%

  

2.66

%

  

2.62

%(c)

 
Net expenses after advisory
fees waived and expenses
reimbursed(h)(i)
  

2.33

%

  

2.38

%

  

2.68

%

  

2.65

%

  

2.62

%(c)

 

Net investment loss

  

(0.85

%)(b)

  

(1.16

%)

  

(0.94

%)(b)

  

(0.56

%)

  

(1.76

%)(c)

 

Portfolio turnover rate

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

(a)  Per share amounts were calculated using average shares outstanding for the year.

(b)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(c)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(d)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(e)  Amount rounds to less than $0.01 per share.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(g)  Total return excludes sales charges, if any, and would be lower for the period presented if it reflected these charges.

(h)  Dividend expense totaled 0.00%, 0.15%, 0.46%, 0.42% and 0.36% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.11%, 0.01%, 0.00%, 0.01% and 0.03% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(i)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 2.22%, 2.22%, 2.22%, 2.22% and 2.23% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
84


Arbitrage Fund – Class A  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

13.01

  

$

12.90

  

$

12.63

  

$

13.07

  

$

12.79

  
Income (loss) from
investment operations
 

Net investment income (loss)(a)

  

(b)

  

(0.05

)

  

(0.02

)(d)

  

(b)

  

(0.13

)(c)

 
Net realized and unrealized
gains on investments and
foreign currencies
  

0.96

   

0.43

   

0.52

   

0.02

   

0.53

(e)

 

Total from investment operations

  

0.96

   

0.38

   

0.50

   

0.02

   

0.40

  

Less distributions

 

From net investment income

  

   

   

(0.07

)

  

(0.10

)

  

  

From net realized gains

  

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

(0.89

)

  

(0.27

)

  

(0.23

)

  

(0.46

)

  

(0.12

)

 

Net asset value, end of period

 

$

13.08

  

$

13.01

  

$

12.90

  

$

12.63

  

$

13.07

  

Total return(f)(g)

  

7.60

%

  

3.00

%

  

3.94

%

  

0.21

%

  

3.17

%

 
Net assets, end of period
(in 000s)
 

$

32,624

  

$

17,762

  

$

18,341

  

$

16,740

  

$

10,012

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(h)

  

1.64

%

  

1.66

%

  

1.94

%

  

1.91

%

  

1.87

%(c)

 
Net expenses after advisory
fees waived and expenses
reimbursed(h)(i)
  

1.58

%

  

1.63

%

  

1.93

%

  

1.90

%

  

1.87

%(c)

 

Net investment loss

  

(0.03

%)(d)

  

(0.40

%)

  

(0.19

%)(d)

  

(0.01

%)

  

(1.02

%)(c)

 

Portfolio turnover rate

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

(a)  Per share amounts were calculated using average shares outstanding for the year.

(b)  Amount rounds to less than $0.01 per share.

(c)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(d)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(e)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(g)  Total return excludes sales charges, if any, and would be lower for the period presented if it reflected these charges.

(h)  Dividend expense totaled 0.00%, 0.15%, 0.46%, 0.42% and 0.36% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.11%, 0.01%, 0.00%, 0.01% and 0.03% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(i)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.47%, 1.47%, 1.47%, 1.47% and 1.48% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Annual Report | May 31, 2021
85


Water Island Event-Driven Fund – Class R  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

9.97

  

$

9.47

  

$

9.46

  

$

9.34

  

$

8.98

  
Income (loss) from
investment operations
 

Net investment income (loss)(a)

  

(0.05

)

  

0.01

   

0.07

   

0.06

   

(0.04

)(b)

 
Net realized and unrealized
gains on investments
and foreign currencies
  

1.46

   

0.51

   

0.08

   

0.09

   

0.40

(c)

 

Total from investment operations

  

1.41

   

0.52

   

0.15

   

0.15

   

0.36

  

Less distributions

 

From net investment income

  

   

(0.02

)

  

(0.14

)

  

(0.03

)

  

  

Total distributions

  

   

(0.02

)

  

(0.14

)

  

(0.03

)

  

  
Proceeds from redemption
fees collected
  

   

   

   

0.00

(d)

  

0.00

(d)

 

Net asset value, end of period

 

$

11.38

  

$

9.97

  

$

9.47

  

$

9.46

  

$

9.34

  

Total return(e)

  

14.14

%

  

5.49

%

  

1.60

%

  

1.56

%

  

4.01

%

 
Net assets, end of period
(in 000s)
 

$

10,116

  

$

7,694

  

$

30,423

  

$

45,383

  

$

70,277

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(f)

  

1.98

%

  

2.11

%

  

2.58

%

  

2.59

%

  

2.56

%(b)

 
Net expenses after advisory
fees waived and expenses
reimbursed(f)(g)
  

1.89

%

  

1.83

%

  

2.18

%

  

2.16

%

  

2.26

%

 

Net investment income (loss)

  

(0.51

%)

  

0.09

%

  

0.70

%

  

0.58

%

  

(0.45

%)(b)

 

Portfolio turnover rate

  

320

%

  

397

%

  

504

%

  

421

%

  

409

%

 

(a)  Per share amounts were calculated using average shares outstanding for the year.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.

(c)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.

(d)  Amount rounds to less than $0.01 per share.

(e)  Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(f)  Dividend expense totaled 0.01%, 0.13%, 0.46%, 0.44% and 0.53% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.19%, 0.01%, 0.03%, 0.03% and 0.04% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(g)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69%, 1.69%, 1.69%, 1.69% and 1.69% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
86


Water Island Event-Driven Fund – Class I  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

10.05

  

$

9.54

  

$

9.53

  

$

9.43

  

$

9.04

  
Income (loss) from
investment operations
 

Net investment income (loss)(a)

  

(0.03

)

  

0.02

   

0.09

   

0.04

   

(0.02

)(b)

 
Net realized and unrealized
gains on investments
and foreign currencies
  

1.48

   

0.53

   

0.09

   

0.12

   

0.41

(c)

 

Total from investment operations

  

1.45

   

0.55

   

0.18

   

0.16

   

0.39

  

Less distributions

 

From net investment income

  

(0.03

)

  

(0.04

)

  

(0.17

)

  

(0.06

)

  

  

Total distributions

  

(0.03

)

  

(0.04

)

  

(0.17

)

  

(0.06

)

  

  
Proceeds from redemption
fees collected
  

   

   

   

0.00

(d)

  

0.00

(d)

 

Net asset value, end of period

 

$

11.47

  

$

10.05

  

$

9.54

  

$

9.53

  

$

9.43

  

Total return(e)

  

14.51

%

  

5.83

%

  

1.88

%

  

1.69

%

  

4.31

%

 
Net assets, end of period
(in 000s)
 

$

125,093

  

$

99,069

  

$

92,710

  

$

103,001

  

$

68,272

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(f)

  

1.73

%

  

1.86

%

  

2.33

%

  

2.34

%

  

2.31

%(b)

 
Net expenses after advisory
fees waived and expenses
reimbursed(f)(g)
  

1.64

%

  

1.58

%

  

1.93

%

  

1.91

%

  

2.01

%

 

Net investment income (loss)

  

(0.24

%)

  

0.20

%

  

0.92

%

  

0.46

%

  

(0.22

%)(b)

 

Portfolio turnover rate

  

320

%

  

397

%

  

504

%

  

421

%

  

409

%

 

(a)  Per share amounts were calculated using average shares outstanding for the year.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.

(c)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.

(d)  Amount rounds to less than $0.01 per share.

(e)  Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(f)  Dividend expense totaled 0.01%, 0.13%, 0.46%, 0.44% and 0.53% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.19%, 0.01%, 0.03%, 0.03% and 0.04% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(g)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.44%, 1.44%, 1.44%, 1.44% and 1.44% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Annual Report | May 31, 2021
87


Water Island Event-Driven Fund – Class A  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

9.97

  

$

9.46

  

$

9.46

  

$

9.35

  

$

8.98

  
Income (loss) from
investment operations
 

Net investment income (loss)(a)

  

(0.06

)

  

(0.00

)(c)

  

0.06

   

0.04

   

(0.05

)(b)

 
Net realized and unrealized
gains on investments
and foreign currencies
  

1.46

   

0.53

   

0.08

   

0.10

   

0.42

(d)

 

Total from investment operations

  

1.40

   

0.53

   

0.14

   

0.14

   

0.37

  

Less distributions

 

From net investment income

  

(0.01

)

  

(0.02

)

  

(0.14

)

  

(0.03

)

  

  

Total distributions

  

(0.01

)

  

(0.02

)

  

(0.14

)

  

(0.03

)

  

  

Net asset value, end of period

 

$

11.36

  

$

9.97

  

$

9.46

  

$

9.46

  

$

9.35

  

Total return(e)(f)

  

14.20

%

  

5.62

%

  

1.56

%

  

1.49

%

  

4.12

%

 
Net assets, end of period
(in 000s)
 

$

1,384

  

$

347

  

$

799

  

$

701

  

$

810

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(g)

  

2.00

%

  

2.11

%

  

2.58

%

  

2.59

%

  

2.56

%(b)

 
Net expenses after advisory
fees waived and expenses
reimbursed(g)(h)
  

1.91

%

  

1.83

%

  

2.18

%

  

2.16

%

  

2.26

%

 

Net investment income (loss)

  

(0.59

%)

  

0.02

%

  

0.65

%

  

0.41

%

  

(0.53

%)(b)

 

Portfolio turnover rate

  

320

%

  

397

%

  

504

%

  

421

%

  

409

%

 

(a)  Per share amounts were calculated using average shares outstanding for the year.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.

(c)  Amount rounds to less than $0.01 per share.

(d)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.

(e)  Total return excludes sales charges, if any, and would be lower for the period presented if it reflected these charges.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares or the imposition of any sales load.

(g)  Dividend expense totaled 0.01%, 0.13%, 0.46%, 0.44% and 0.53% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.21%, 0.01%, 0.03%, 0.03% and 0.04% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(h)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69%, 1.69%, 1.69%, 1.69% and 1.69% of average net assets for the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

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88


Water Island Credit Opportunities Fund – Class R  Financial Highlights

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  

Year Ended May 31,

 
  

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

9.64

  

$

9.70

  

$

9.77

  

$

9.67

  

$

9.69

  
Income (loss) from
investment operations
 

Net investment income(a)

  

0.22

   

0.24

   

0.31

   

0.20

   

0.23

(b)

 
Net realized and unrealized
gains (losses) on investments
and foreign currencies
  

0.54

   

(0.01

)

  

(0.07

)

  

0.12

   

0.01

  

Total from investment operations

  

0.76

   

0.23

   

0.24

   

0.32

   

0.24

  

Less distributions

 

From net investment income

  

(0.24

)

  

(0.29

)

  

(0.31

)

  

(0.22

)

  

(0.26

)

 

Total distributions

  

(0.24

)

  

(0.29

)

  

(0.31